Judge: Michael Shultz, Case: 23STCV00233, Date: 2025-05-06 Tentative Ruling

DEPARTMENT 40 - MICHAEL J. SHULTZ  - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call. 

Case Number: 23STCV00233    Hearing Date: May 6, 2025    Dept: 40

23STCV00233 Alex Yutkovsky, Trustee v. Noho 10 LLC, et al.

[TENTATIVE] ORDER GRANTING MOTION FOR LEAVE TO FILE A THIRD AMENDED COMPLAINT

                                                                                         I.         BACKGROUND

      Plaintiff commenced this action on January 5, 2023. The second amended complaint, filed on July 21, 2023, arises from a dispute over Defendants’ failure to pay three loans extended to Defendant Noho 10, LLC (“Noho”) that were secured by deeds of trust recorded against real property. Defendant, German Nesterenko (“German”) is alleged to be Noho’s chief executive officer and agent for service of process.

      Plaintiff contends Defendants fraudulently represented they would pay the third loan if Plaintiff consolidated the first two loans although Defendants never intended to pay the third loan. Defendants allegedly absconded with $1,056,000 in funds, which is the demand of the second amended complaint.

      Plaintiff alleges eight causes of action for fraud and fraud-related claims, breach of contract, intentional interference with contract, breach of the implied covenant of good faith and fair dealing, cancellation of instrument, and for declaratory relief.

      A trial setting conference is set for May 6, 2025. Defendant, Arthur Nesterenko, defaulted on December 4, 2023.

                                                                                          II.        ARGUMENTS

      Plaintiff requests leave to file a third amended complaint (“TAC”) to delete the fifth cause of action for breach of the implied covenant of good faith and fair dealing and to add defendants German and Arthur Nesterenko to the fourth cause of action for breach of contract. Plaintiff intends to add facts to further illustrate the chain of relevant events and to include facts obtained through deposition subpoenas including one for records relating to a third-party escrow. The claim for cancellation of instrument is amended to clarify the allegations. Plaintiff intends to add exhibits to support the alleged claims.

      Plaintiff argues that access to information has been hampered by Defendant Noho’s bankruptcy and because its manager is in default. In the last year, Plaintiff has obtained information through written discovery and the deposition of Defendant German and information obtained by subpoena. Plaintiff is an elderly widower and required the aid of his agent working on his behalf.  The amendments are closely related to the facts alleged in the complaint, and therefore, Defendants will not suffer any prejudice.

      In opposition, Defendant German argues the proposed third amended complaint is a sham. Plaintiff did not justify the delay to add claims of which Plaintiff already knew. German was not involved whatsoever. The claims are demonstrably false. Plaintiff obtained information while Noho was in bankruptcy, without having served the bankruptcy trustee with notice of the discovery motions.  Plaintiff learned of the conduct of his agent four years ago.

      Defendant argues that if the court is inclined to allow leave to amend, the order should be conditioned on Plaintiff’s payment of any additional fees and costs incurred to prepare for trial.

      In reply, Plaintiff argues that all requirements for leave to amend have been met. The allegations were required based on newly discovered information. The merits of the case are not at issue in this motion. The court does not consider the validity of the proposed pleading. Defendant has not shown how the amendment causes prejudice.         

                                                                                  III.       LEGAL STANDARDS

      Leave to amend is permitted at the court’s discretion upon any terms that may be just. (Code Civ. Proc., § 473 subd. (a)(1).) The statute is liberally construed to permit amendment of the pleadings “unless an attempt is made to present an entirely different set of facts by way of the amendment.” (Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 760.)

      If the motion is timely made and the granting of the motion will not result in prejudice to the opposing party, it is error to refuse permission to amend. (Morgan v. Superior Court of Cal. In and For Los Angeles County (1959) 172 Cal.App.2d 527, 530.) Where denial of the motion will result in a party being deprived of the right to assert a meritorious cause of action, “it is not only error but an abuse of discretion”. (Id.) The liberal policy permitting amendment at any stage of the proceedings, up to and including trial, "should be applied only ‘[w]here no prejudice is shown to the adverse party”. (Atkinson at 761.)

                                                                                           IV.       DISCUSSION

A.     Procedural requirements.

      Plaintiff substantially complied with the procedures required to request leave to amend. (Cal Rules of Court, Rule 3.1324 subd. (a).)  Plaintiff provides a redline version of the proposed pleading showing what allegations are proposed to be added and deleted and where, by page, paragraph, and line number. (Jay Cohen decl., Ex. B.) Plaintiff’s counsel explains the effect of the proposed amendments (removing one cause of action and including additional allegations relating to the sequence of events, clarifying the allegations with additional facts, and the addition of two Defendants to the contract claim. (Cohen decl., ¶ 3.) Plaintiff’s counsel did not move to amend the pleading earlier for lack of information that has been recently discovered between September and December of 2024. (Id. at ¶ 3.) Plaintiff issued 12 different subpoenas and attempted to conduct two depositions. (Id. at ¶ 6.)  

      The amended pleading will narrow the scope of claims by deleting the fifth cause of action for breach of the implied covenant of good faith and fair dealing and deleting a defendant (Bronzetree Terraces, LLC). (Cohen Decl., Ex. B.) The 28-page second amended complaint will be reduced to 21 pages.

B.     Defendant has not shown resulting prejudice.  

      The type of prejudice that will support denying the motion include a delay in trial, loss of critical evidence, or added costs of preparation. (Bidari v. Kelk (2023) 90 Cal.App.5th 1152, 1173.)        Defendant has not shown that substantial prejudice will result from the filing of the third amended complaint.  Defendant relies in part on Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471.  In Magpali, however, the new cause of action "would have changed the tenor and complexity of the complaint from its original focus.” (Magpali at 487.) Witnesses had not yet been identified, a jury was impaneled, and a trial continuance was necessary to permit opposing party to depose new witnesses. The case is factually distinguishable. (Id. at 488.) Here, a trial date has not yet been set.

      The proposed additions and deletions at issue here do not “change the tenor” of the case as they arise from the same alleged scheme to defraud Plaintiff of loan proceeds that Defendants allegedly did not repay. Defendant does not identify what additional preparation will be required. 

      If there is no prejudice to the opposing party, only slight evidence is needed. Doubts are resolved in favor of the party seeking relief in furtherance of the policy that the law strongly favors trial and disposition on the merits. (Mink v. Superior Court, (1992) 2 Cal.App.4th 1338, 1343. [“We will more carefully scrutinize an order denying relief than one which permits a trial on the merits.”].)

C.     The merits of the proposed new allegations are irrelevant.

      Defendant’s contention that the pleading is a sham or that the allegations are unfounded is not relevant to the court’s consideration of whether leave to amend should be granted. The court does not consider the validity of the amendments at this stage as “the better course is to allow a plaintiff to amend the complaint and then let the parties test its legal sufficiency in other appropriate proceedings.” (Brown v. Ralphs Grocery Co. (2018) 28 Cal.App.5th 824, 843.)

      Defendant’s contention that the information was wrongfully obtained without notice to the bankruptcy trustee in Noho’s bankruptcy proceeding is not relevant to whether leave to amend should be granted.

                                                                                               V.        CONCLUSION

      Based on the foregoing, Plaintiff’s motion is GRANTED. Plaintiff is ordered to file the proposed third amended complaint within 10 days.