Judge: Michael Shultz, Case: TC028783, Date: 2023-07-20 Tentative Ruling
Case Number: TC028783 Hearing Date: November 21, 2023 Dept: A
Tuesday,
November 21, 2023, at 8:30 a.m.
[TENTATIVE] ORDER
I.
BACKGROUND
The operative Fifth Amended Complaint (“5AC”) alleges that
Defendants unlawfully converted Plaintiffs’ right to possess permits and
licenses to operate a medical marijuana dispensary (“THC”). Plaintiffs allege
seven causes of action for conversion and fraud and for equitable remedies. On
August 24, 2023, the Court granted the Motion for Summary Judgment filed by
Defendants, Ray Chacon (“Chacon”) and David Welch (“Welch”), both of whom were dismissed
from the 5AC. The operative causes of action against Defendant, Anna Blazevich
(“Blazevich”), are:
1. Conversion
2. Fraud
(a) Intentional Misrepresentation
(b) Concealment
3. Intentional interference with
prospective economic advantage
4. Unjust enrichment
5. Declaratory relief
6. Preliminary injunction
7. Unfair business practices
II. ARGUMENTS
Defendant Blazevich argues Plaintiffs are
barred by collateral estoppel from pursuing all causes of action. Plaintiffs
lack standing to sue because they have not established rightful ownership to
THC; they are not officers, directors, owners, creditors, or agents of THC. The
Court previously granted Defendants, Welch and Chacon’s, Motion for Summary
Judgment on the same issue in Defendants’ favor. Setting aside the issue of
collateral estoppel, the undisputed facts establish that Plaintiffs lack
standing to sue Blazevich.
In opposition, Plaintiffs argue that their
standing to sue cannot be adjudicated because material facts are controverted. The
entire litigation is based on Defendant, Michael B.’s fraudulent execution of a
Certificate of Revivor asserting he was president of THC although he was not
affiliated with nor a director of THC.
In reply, Blazevich argues that after six
years of litigation, there is no evidentiary support for the claim that
Plaintiffs have standing to assert any of the claims asserted.
III. LEGAL STANDARDS
Summary judgment is proper “if all the
papers submitted show that there is no triable issue as to any material fact
and that the moving party is entitled to judgment as a matter of law.” (Code
Civ. Proc., § 437c(c).) As the moving
party, Plaintiff’s burden is to produce admissible evidence on each element of
a cause of action entitling him or her to judgment. (§437c(p)(1).) If that threshold burden is established, the burden shifts to the
opposing party to show a triable issue of one or more material facts. (Code
Civ. Proc., §437c(p)(1).)
A party may move for summary
adjudication “as to one or more causes of action within an action, one or more
affirmative defenses, one or more claims for damages, or one or more issues of
duty, if the party contends that the cause of action has no merit, that there
is no affirmative defense to the cause of action, that there is no merit to an
affirmative defense as to any cause of action, [or] that there is no merit to a
claim for [punitive] damages.” (Code Civ. Proc., § 437c subd.
(f)(1).) A motion for
summary adjudication shall be granted only if it completely disposes of a cause
of action, an affirmative defense, a claim for damages, or an issue of duty. (Code Civ. Proc., § 437c. subd.(f)(1).)
The court applies the three-step
analysis to motions for summary judgment or adjudication: (1) identify the
issues framed by the pleading, (2) determine whether the moving party
established facts which negate the opponents’ claim, (3) if the moving party
meets its threshold burden of persuasion and the burden shifts, determine
whether the opposing party has controverted those facts with admissible
evidence. (Torres v. Reardon (1992) 3 Cal.App.4th 831, 836.)
IV. DISCUSSION
A. Alleged facts.
Lopez, Munoz, and THC, allege they had
the right to possess a mutual benefit corporation named THC (5AC, ¶25).
Additionally, Plaintiffs allege they owned, possessed, or had the right to
possess several permits and licenses obtained under THC’s name to operate the
business. (Id.) Plaintiffs allege these
rights vested in THC but also in Plaintiffs Munoz and Lopez as individuals. (Id.)
The 5AC alleges that Defendants
interfered with Plaintiffs’ business by filing fraudulent and misleading
corporate documents relating to THC, taking physical possession of Plaintiffs’
sellers’ permit, and by filing documents with the Secretary of State merging
THC with Pacoima Recovery Collective of which the Blazevich defendants were
officers. (5AC, ¶¶ 10, 26.) Plaintiffs allege they have suffered financial
harm, are unable to continue the dispensary’s operation, have lost all
investment funds, and suffered reputational harm while defending criminal
charges against THC for other individuals’ actions. (5AC, ¶ 28.)
All causes of action are predicated on
the alleged fraudulent assumption of THC’s business identity, name, image, and
goodwill. (5AC ¶ 3.).
B. Legal
standards applicable to Plaintiffs’ standing.
The 5AC does not allege a derivative
suit, which is “injury to the corporation, or to the whole body of its stock
and property without any severance or distribution among individual holders,”
or where the action “seeks to recover assets for the corporation or to prevent
the dissipation of its assets. … [T]he shareholders derive no benefit ‘except
the indirect benefit resulting from a realization upon the corporation's
assets.’” (Grosset
v. Wenaas (2008) 42 Cal.4th 1100, 1108.)
Shareholders, however, may bring a direct
action for injury to his or her interests as a shareholder. (Schuster
v. Gardner (2005) 127 Cal.App.4th 305, 311.) Therefore, a
shareholder’s individual claim for conversion of the shareholder’s stock in a
corporation, which is personal property, may be asserted where defendants
allegedly deprived the plaintiffs of the ownership of their shares in the
corporation. (Holistic
Supplements, L.L.C. v. Stark (2021) 61 Cal.App.5th 530, 542.
[“In determining whether an individual action as opposed to a derivative action
lies, a court looks at ‘the gravamen of the wrong alleged in the
pleadings.’”].)
While the 5AC includes THC as Plaintiff,
the gravamen of the 5AC seeks Plaintiffs’ recovery of their lost investment
funds and rights to operate the dispensary. Blazevich argues that in order for
Plaintiffs to establish their right to sue for individual claims, Plaintiffs
must have evidence showing receipt of THC’s shares. Plaintiffs do not have an
interest in THC as there is no evidence that shares were delivered to
Plaintiffs. Accordingly, the threshold issue is whether Plaintiffs have the
right to assert individual claims in a direct action based on its alleged
ownership of the corporate entity. (Denevi
v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1221 ["Rather it is
settled that one who has suffered injury both as an owner of a corporate entity
and in an individual capacity is entitled to pursue remedies in both
capacities.”].)
Defendant argues that the Plaintiffs’
standing to sue has been finally adjudicated in Chacon’s and Welch’s favor when
the Court GRANTED their Motion for Summary Judgment which should also bar
Plaintiffs’ claims against Blazevich.
C. Collateral
estoppel.
The
second aspect of res judicata known as collateral estoppel, or issue
preclusion, prohibits relitigating issues decided in a prior proceeding. Issue
preclusion applies "(1) after final adjudication (2) of an identical issue
(3) actually litigated and necessarily decided in the first suit and (4)
asserted against one who was a party in the first suit or one in privity with
that party." (DKN
Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 825.)
Collateral estoppel precludes a party to
prior litigation from redisputing issues therein decided against him,
even when those issues bear on different claims raised in a later case.
Moreover, because the estoppel need not be mutual, it is not necessary that the
earlier and later proceedings involve the identical parties or their privies.
Only the party against whom the doctrine is invoked must be bound by the
prior proceeding." (Roos
v. Red (2005) 130 Cal.App.4th 870, 879.) Thus, the order granting
summary judgment in Defendants’ favor on the issue of Plaintiffs’ lack of
standing “operates as a shield” against Plaintiffs to prevent them from
relitigating a settled issue against Blazevich. (Favila
v. Pasquarella (2021) 65 Cal.App.5th 934, 946).
Plaintiffs’ opposition does not address
the issue of collateral estoppel. The Court grants Defendant’s request to take judicial
notice of the Court’s August 24, 2023, ruling granting Welch’s and Chacon’s
Motion for Summary Judgment submitted by Defendant (“RJN”, Ex. 10; Evid. Code,
§ 452(d).) The Court also dismissed both Defendants from the 5AC. (Id.)
D. Objections
to Plaintiffs’ evidence.
1) Defendant’s
objections to the Declaration of Allen Dana
#1
Sustained. Lacks foundation, speculation. The documents proffered do not
reflect a purchase of shares as declared by Dana.
#2 Sustained. Lacks foundation as
to Mr. Weatherley’s capacity.
#3-6 Sustained. Lacks foundation
and authentication for the “shareholder minutes.”
2) Defendant’s
objections to the Declaration of German Munoz
#1 Overruled with respect to books
and records of THC.
#2 Sustained. Hearsay as to Mr.
Dana’s statements.
#3. Overruled. Plaintiff’s
authority to convert shares goes to weight not admissibility.
#4. Overruled. Plaintiff’s October
25, 2011, copy of the minutes is a business record.
E.
The undisputed material facts
support Defendant’s argument.
Plaintiffs have not controverted
the material facts asserted with competent evidence. The 5AC alleges that Munoz
acquired an interest in THC in 2010 from Allen Dana, who purchased his interest
in the corporation on September 4, 2009. (Munoz decl. ¶ 2). At that time Munoz became
the President of THC and assumed primary responsibility for THC’s operations.
(5AC ¶ 5.)
Munoz does not describe whether the
interest he acquired was an “ownership” interest, a “shareholder” interest, or
a “membership” interest. A “member” of a
corporation has voting rights pursuant to the corporation’s articles or bylaws.
(Corp.
Code, § 5056.) A person is not a member by virtue of “any
rights such person has as a director.” (Id. subpart(d)(2).)
Acquiring an interest or share in a corporation requires delivery of the
security by purchase or where another person acquires possession on behalf of
the purchaser. (Cal.
U. Com. Code, § 8301 subd(a)(1).)
The Court has again reviewed the
Declarations of Plaintiff Munoz and Allen Dana and the documents provided,
which are the same documents submitted in opposition to the prior Motion for
Summary Judgment. There is no documentation of a transfer of
shares between Allen and Plaintiff Munoz. Therefore, Munoz’s evidence fails to
negate Blazevich’s contention that Munoz is not a shareholder or owner with an
interest in THC.
Plaintiffs
did not dispute that Lopez’s first appearance in the Statement of Information
occurred on April 11, 2017, in which she is identified as CEO, secretary, and
CFO. (UF 12-14.) The
Court previously found that
it was undisputed that Plaintiff Lopez was not a shareholder.
Therefore, her lack of standing to sue was not in controversy.
V. CONCLUSION
Based on the foregoing, Defendant Anne
Blazevich’s motion for summary judgment of all claims asserted against
Defendant is GRANTED. The Court orders
Defendant Anne Blazevich dismissed from the fifth amended complaint.