Judge: Michael P. Linfield, Case: 22STCV16604, Date: 2023-01-06 Tentative Ruling
Case Number: 22STCV16604 Hearing Date: January 6, 2023 Dept: 34
SUBJECT: Demurrer
Moving Party: Plaintiff/Cross-Defendant
Eric Milestone
Resp. Party: Defendant/Cross-Complainant Sean P. Dunn
Defendant’s
Demurrer is SUSTAINED with leave to amend as to the fifth and sixth causes of
action in the Verified First Amended Cross-Complaint. The Demurer is OVERRULED
as to the first, second, third, fourth, and seventh causes of action.
BACKGROUND:
On October 3, 2022,
Defendant/Cross-Complainant filed: (1) Answer to the Complaint; and (2)
Cross-Complaint against Plaintiffs/Cross-Defendants Gas Pedal Delivery &
Distribution LLC and Eric Milestone.
On October 7, 2022,
Defendant/Cross-Complainant filed his Verified First Amended Cross-Complaint.
On December 5, 2022,
Plaintiff/Cross-Defendant Eric Milestone filed his Demurrer to the Verified
First Amended Cross-Complaint.
On December 22, 2022,
Defendant/Cross-Complainant filed his Opposition.
Plaintiff/Cross-Defendant Eric
Milestone has not filed a reply or other response.
ANALYSIS:
I.
Legal
Standard
A demurrer is a pleading used to test the legal sufficiency of other
pleadings. It raises issues of law, not fact, regarding the form or content of
the opposing party’s pleading. It is not the function of the demurrer to
challenge the truthfulness of the complaint; and for the purpose of the ruling
on the demurrer, all facts pleaded in the complaint are assumed to be true,
however improbable they may be. (Code Civ. Proc., §§ 422.10, 589.)
A demurrer can be used only to challenge defects that appear on the
face of the pleading under attack; or from matters outside the pleading that
are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311.) No
other extrinsic evidence can be considered (i.e., no “speaking demurrers”). A
demurrer is brought under Code of Civil Procedure section 430.10 (grounds),
section 430.30 (as to any matter on its face or from which judicial notice may
be taken), and section 430.50(a) (can be taken to the entire complaint or any
cause of action within).
A demurrer may be brought under Code of Civil Procedure section 430.10,
subdivision (e) if insufficient facts are stated to support the cause of action
asserted. A demurrer for uncertainty (Code of Civil Procedure section 430.10,
subdivision (f)), is disfavored and will only be sustained where the pleading
is so bad that defendant cannot reasonably respond—i.e., cannot reasonably
determine what issues must be admitted or denied, or what counts or claims are
directed against him/her. (Khoury v. Maly's of Calif., Inc. (1993) 14
Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague,
“ambiguities can be clarified under modern discovery procedures.” (Id.)
II.
Discussion
Plaintiff/Cross-Defendant demurs as
all seven causes of action listed in Defendant/Cross-Complainant’s Verified
First Amended Cross-Complaint. (Demurrer, p. 2:3–22.) Plaintiff argues that
these causes of action are not supported by sufficient facts and are uncertain.
(Id.)
A. Involuntary
Dissolution and Appointment of Receiver
1. Legal
Standard
“A verified complaint
for involuntary dissolution of a corporation on any one or more of the grounds
specified in subdivision (b) may be filed in the superior court of the proper
county by any of the following persons:
(1)
“One-half or more of the directors in office.
(2)
“A shareholder or shareholders who hold shares representing not
less than 331/3 percent
of (i) the total number of outstanding shares (assuming conversion of any
preferred shares convertible into common shares) or (ii) the outstanding common
shares or (iii) the equity of the corporation, exclusive in each case of shares
owned by persons who have personally participated in any of the transactions
enumerated in paragraph (4) of subdivision (b), or any shareholder or
shareholders of a close corporation.
(3)
“Any shareholder if the ground for dissolution is that the
period for which the corporation was formed has terminated without extension
thereof.
(4)
“Any other person expressly authorized to do so in the
articles.”
(Corp. Code, § 1800, subd. (a).)
“The grounds for
involuntary dissolution are that:
(1)
“The corporation has abandoned its business for more than one
year.
(2)
“The corporation has an even number of directors who are equally
divided and cannot agree as to the management of its affairs, so that its
business can no longer be conducted to advantage or so that there is danger
that its property and business will be impaired or lost, and the holders of the
voting shares of the corporation are so divided into factions that they cannot
elect a board consisting of an uneven number.
(3)
“There is internal dissension and two or more factions of
shareholders in the corporation are so deadlocked that its business can no
longer be conducted with advantage to its shareholders or the shareholders have
failed at two consecutive annual meetings at which all voting power was
exercised, to elect successors to directors whose terms have expired or would
have expired upon election of their successors.
(4)
“Those in control of the corporation have been guilty of or have
knowingly countenanced persistent and pervasive fraud, mismanagement or abuse
of authority or persistent unfairness toward any shareholders or its property
is being misapplied or wasted by its directors or officers.
(5)
“In the case of any corporation with 35 or fewer shareholders
(determined as provided in Section 605), liquidation is reasonably necessary
for the protection of the rights or interests of the complaining shareholder or
shareholders.
(6)
“The period for which the corporation was formed has terminated
without extension of such period.”
(Corp. Code, § 1800, subd. (b)(1)–(6).)
2. Analysis
Among other things,
Defendant/Cross-Complainant alleges: (1) that Defendant/Cross-Complainant owns
at least a 49% ownership interest in Plaintiff/Cross-Defendant Gas Pedal
Delivery & Distribution LLC; (2) that Plaintiff/Cross-Defendant Milestone
has forged an operating agreement for the corporation and defrauded
Defendant/Cross-Complainant; and (3) that in attempting to run the corporation,
Plaintiff/Cross-Defendant Milestone has engaged in fraud and mismanagement of
the corporation. (Verified First Amended Cross Complaint, ¶¶ 17, 21, 22.)
Assuming that these allegations are
true for the purposes of the Demurrer, they are sufficient for the first cause
of action to survive because they support: (1) that Defendant/Cross-Complainant
has standing to sue for this cause of action pursuant to Corporations Code
section 1800, subdivision (a)(2); and (2) that Defendant/Cross-Complainant has
grounds to sue for this cause of action pursuant to Corporation Code section
1800, subdivision (b)(4).
The Court OVERRULES the
Demurrer as to the first cause of action for involuntary dissolution and
appointment of receiver.
B. Breach
of Fiduciary Duty
1. Legal
Standard
“The elements of a cause of action for
breach of fiduciary duty are the existence of a fiduciary relationship, its
breach, and damage proximately caused by that breach.” (City of Atascadero
v. Merrill Lynch, Pierce, Fenner, & Smith, Inc. (1998) 68 Cal.App.4th
445, 483.)
“There are two kinds of fiduciary duties – those imposed
by law and those undertaken by agreement.” (Gab Bus. Servs. v. Lindsey &
Newsom Claim Servs. (2000) 83 Cal.App.4th 409, 416, emphasis omitted,
overruled in part on other grounds by Reeves v. Hanlon (2004) 33 Cal.4th
1140, 1154.)
“Fiduciary duties are imposed
by law in certain technical, legal relationships such as those between partners
or joint venturers, husbands and wives, guardians and wards, trustees and
beneficiaries, principals and agents, and attorneys and clients.” (Id.,
citations omitted.)
“A fiduciary duty is undertaken by
agreement when one person enters into a confidential relationship
with another.” (Id. at 417.)
2. Analysis
Among other things,
Defendant/Cross-Complainant alleges: (1) that Defendant/Cross-Complainant and
Plaintiff/Cross-Defendant Milestone co-owned Plaintiff/Cross-Defendant Gas
Pedal Delivery & Distribution LLC; (2) that Plaintiff/Cross-Defendant
Milestone has forged an operating agreement for the corporation and defrauded
Defendant/Cross-Complainant; (3) that in attempting to run the corporation,
Plaintiff/Cross-Defendant Milestone has engaged in fraud and mismanagement of
the corporation; ad (4) that due to this behavior, Defendant/Cross-Complainant
has been harmed in amounts exceeding $25,000.00. (Verified First Amended
Cross-Complaint, ¶¶ 27, 31–33.)
Assuming that these allegations are
true for the purposes of the Demurrer, they are sufficient for the second cause
of action to survive.
The Court OVERRULES the
Demurrer as to the second cause of action for breach of fiduciary duty.
C. Negligence
1. Legal
Standard
In order to state a claim for negligence, Plaintiff must allege the
elements of (1) “the existence of a legal duty of care,” (2) “breach of that
duty,” and (3) “proximate cause resulting in an injury.” (McIntyre v. Colonies-Pacific, LLC (2014) 228 Cal.App.4th 664, 671.)
2. Analysis
Among other things, Defendant/Cross-Complainant
alleges: (1) that due to their relationship as co-owners of
Plaintiff/Cross-Defendant Gas Pedal Delivery & Distribution LLC,
Plaintiff/Cross-Defendant Milestone owed duties to Defendant/Cross-Complainant
to use reasonable and due care, of loyalty, and of good faith; (2) that
Plaintiff/Cross-Defendant Milestone breached his duty of care by not avoiding
self-dealing, by not acting responsibly or prudently, and by defrauding
Defendant/Cross-Complainant; and (3) that Plaintiff/Cross-Defendant Milestone’s
conduct was a substantial factor in proximately causing
Defendant/Cross-Complainant harms in excess of $25,000.00. (Verified First
Amended Cross-Complaint, ¶¶ 36–37, 40, 42–43.)
Assuming that these allegations are
true for the purposes of the Demurrer, they are sufficient for the second cause
of action to survive.
The Court OVERRULES the
Demurrer as to the third cause of action for negligence.
D. Conversion
1. Legal
Standard
“Conversion is the wrongful exercise of
dominion over the property of another. The elements of a conversion claim are:
(1) the plaintiff’s ownership or right to possession of the property; (2) the
defendant’s conversion by a wrongful act or disposition of property rights; and
(3) damages.” (Lee v. Hanley (2015)
61 Cal.4th 1225, 1240.)
2. Analysis
Among other things,
Defendant/Cross-Complainant alleges: (1) that Defendant/Cross-Complainant owns
a 49% equity stake in the corporation; (2) that Plaintiff/Cross-Defendant Milestone
attempted to unlawfully take Defendant/Cross-Complainant’s equity stake; and
(3) that Defendant/Cross-Complainant was harmed as a result in an amount to be
proved at Trial. (Verified First Amended Cross-Complaint, ¶¶ 45, 47.)
Assuming that these allegations are
true for the purposes of the Demurrer, they are sufficient for the second cause
of action to survive.
The Court OVERRULES the
Demurrer as to the fourth cause of action for conversion.
E. Intentional
Misrepresentation
1. Legal
Standard
“The elements of a cause of action for intentional misrepresentation
are (1) a misrepresentation, (2) with knowledge of its falsity, (3) with the
intent to induce another’s reliance on the misrepresentation, (4) actual and
justifiable reliance, and (5) resulting damage.” (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th
1150, 1166.)
The facts constituting the alleged fraud must be alleged factually and
specifically as to every element of fraud, as the policy of “liberal
construction” of the pleadings will not ordinarily be invoked. (Lazar v. Super. Ct. (1996) 12 Cal.4th
631, 645.)
To properly allege fraud against a corporation, the plaintiffs must
plead the names of the persons allegedly making the false representations,
their authority to speak, to whom they spoke, what they said or wrote, and when
it was said or written. (Tarmann v. State
Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)
2. Analysis
Among other things,
Defendant/Cross-Complainant alleges: (1) that Plaintiff/Cross-Defendant Milestone
engaged in misrepresentations, including by representing that
Defendant/Cross-Complainant signed an agreement that
Defendant/Cross-Complainant did not actually sign; (2) that
Plaintiff/Cross-Defendant Milestone knew the representations were false when
they were made or made the representations recklessly and without regard for
their truth; (3) that Plaintiff/Cross-Defendant Milestone intended to defraud
Defendant/Cross-Complainant and for Defendant/Cross-Complainant to rely on the
misrepresentations so that Defendant/Cross-Complainant would pay
Plaintiff/Cross-Defendant Milestone money not actually owed; (4) that
Defendant/Cross-Complainant did reasonably rely on the misrepresentations; and
(5) that Defendant/Cross-Complainant has been damaged in an amount totaling at
least $25,000.00. (Verified First Amended Cross-Complaint, ¶¶ 49–55.)
Even assuming that these allegations
are true for the purposes of the Demurrer, they are not sufficiently specific to
meet the pleading requirements for a cause of action of intentional
misrepresentation. For instance, as to Plaintiff/Cross-Defendant Gas Pedal
Delivery & Distribution LLC, it is unclear who was spoken to, what exactly
was said or written, and when exactly it was spoken or written.
The Court SUSTAINS with leave to
amend the Demurrer as to the fifth cause of action for intentional
misrepresentation.
F. Negligent
Misrepresentation
1. Legal
Standard
The facts constituting the alleged fraud must
be alleged factually and specifically as to every element of fraud, as the
policy of “liberal construction” of the pleadings will not ordinarily be
invoked. (Lazar v. Super. Ct. (1996)
12 Cal.4th 631, 645.)
To properly allege fraud against a
corporation, the plaintiff must plead the names of the persons allegedly making
the false representations, their authority to speak, to whom they spoke, what
they said or wrote, and when it was said or written. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153,
157.)
2. Analysis
The Court notes that the same
problems arises for this cause of action for negligent misrepresentation as were
discussed above for the prior cause of action for intentional misrepresentation.
The Court SUSTAINS with leave to
amend the Demurrer as to the sixth cause of action for negligent
misrepresentation.
G. Abuse
of Process
1. Legal
Standard
“There are two main elements of a cause of action for abuse of process:
first, an ulterior purpose, and second, a wilful act in the use of the process
not proper in the regular conduct of the proceeding. Process is action taken
pursuant to judicial authority. Merely obtaining or seeking process is not
enough; there must be subsequent abuse, by a misuse of the judicial process for
a purpose other than that which it was intended to serve. The gist of the tort
is the improper use of the process after it is issued.” (Siam v. Kizilbash (2005) 130 Cal.App.4th 1563, 1580, quotation
marks, citations, ellipses, and paragraph breaks omitted.)
2. Analysis
Among other things,
Defendant/Cross-Complainant alleges: (1) that Plaintiff/Cross-Defendant
Milestone filed his Complaint with this Court; (2) that
Plaintiff/Cross-Defendant Milestone submitted to the Court a forged operating
agreement as Exhibit A to the Complaint; and (3) that Plaintiff/Cross-Defendant
thus intentionally used this legal procedure to extort money and property from
Defendant/Cross-Complainant that was not owed. (Verified First Amended
Complaint, ¶¶ 69–71.)
Assuming that these allegations are
true for the purposes of the Demurrer, they are sufficient for the second cause
of action to survive.
The Court OVERRULES the
Demurrer as to the seventh cause of action for abuse of process.
III.
Conclusion
Defendant’s
Demurrer is SUSTAINED with leave to amend as to the fifth and sixth causes of
action in the Verified First Amended Cross-Complaint. The Demurer is OVERRULED
as to the first, second, third, fourth, and seventh causes of action.