Judge: Michael Small, Case: 22STCV02911, Date: 2025-01-15 Tentative Ruling

Inform the clerk if you submit on the tentative ruling. If moving and opposing parties submit, no appearance is necessary.

Case Number: 22STCV02911    Hearing Date: January 15, 2025    Dept: 57

Pending before the Court is the demurrer of Plaintiff/Cross-Defendant Adam Michael Perzow ("Perzow") to the First Amended Cross-Complaint ("FACC") of Defendants/Cross-Complainants Accolade, Inc. ("Accolade") and MD Insider, Inc. ("MDI"). The demurrer is sustained in part without leave to amend and overruled in part.  Perzow is directed to file an answer to the FACC by January 31, 2025.

The FACC contains eight causes of action.  Perzow contends in the demurrer that the first seven causes of action reflect an impermissible collateral attack on a 2017 judgment entered in litigation that Perzow brought in Orange County Superior Court against MDI ("the OC Judgment".)   In the Orange County litigation, Perzow also sued Jay W. Calvert and Calvert Enterprises, Inc. (collectively, "Calvert").  MDI and Calvert filed a cross-complaint against Perzow in the Orange County litigation.  The OC Judgment memorialized a 2015 settlement agreement between Perzow, on the one hand, and MDI and Calvert on the other hand.  As pertinent here, the settlement agreement that is memorialized in the OC Judgment (1) rescinded a 2011 release through which Perzow gave up his asserted 50% ownership interest in MDI ("the Rescission Term"), and (2) contained a general release under Civil Code Section 1542 of each side's known and unknown claims against the other side ("the Release Term"). 

The first cause of action in the FACC seeks a declaration that Perzow owns no rights in or to the intellectual property of Accolade and MDI (collectively, "the Defendants").  The second, third, and fourth causes of action are fraud-based claims arising from the initial dealings between Perzow and MDI in 2010 and 2011 that led to Perzow becoming a purported 50% owner of MDI.  The fifth, sixth, and seventh causes of action are fraud-based claims arising from Perzow's  interpretation of the the Rescission Term and the Release Term in the settlement agreement memorialized in the OC Judgment, which the Defendants say Perzow concealed from them at the time.

As to the FACC's eighth cause of action, which is for breach of fiduciary duty, Perzow contends that the FACC contains insufficient allegations to support that claim.

Perzow also contends that all eight causes of action in the FACC are barred by the applicable statutes of limitations.

Collateral Attack on OC Judgment

The FACC's cause of action for declaratory relief is not a collateral attack on the OC Judgment. It simply seeks a declaration of the parties' rights under the OC Judgment.  In other words, it asks this Court to interpret the OC Judgment, not undo it.  Perzow's demurrer to this cause of action is overruled.

The fraud-based claims in the FACC's fifth, sixth, and seventh causes of action are not a collateral attack on the OC Judgment either.  Through those claims, the Defendants assert that Perzow is now adopting an interpretation of the OC Judgment that is at odds with the terms of the settlement agreement that is memorialized in the OC Judgment -- an interpretation that Perzow concealed from MDI at the time.  Through that interpretation, Perzow maintains that the Rescission Term enables him to assert the claims that he has brought against Accolade and MDI in the action pending in this Court  and the Release Term does not bar those claims.  The Defendants assert in the fifth, sixth, and seventh causes of action Perzow perpetrated a fraud on MDI in hiding this interpretation from them.  That contention is not a collteral attack on the OC Judgment.

The fraud-based claims in the second, third, and fourth causes of action do, however, reflect a collateral attack on the OC Judgment. Those claims were given up through the Release Term.   The Recission Term does not somehow revive those claims.  That is because the Rescission Term only benefits Perzow.   This is not to say that Perzow's position that the Rescission Term enables him to pursue his claims in this action notwithstanding the Release Term is correct.  In overruling the Defendants' demurrer last year, the Court simply held that, at the pleading stage, Perzow's position on the interplay between the Recission Term and the Release Term was reasonable.  The Defendants' position that they can pursue the fraud-based claims in the second, third, and fourth causes of action in the FACC notwithstanding the Release Term is not reasonable. The Court does not believe that the Defendants can amend the FACC further to state those claims without running into the bar of the OC Judgment.  For that reason, Perzow's demurrer to the second, third, and fourth  causes of action in the FACC is sustained without leave to amend.

Fiduciary Duty Claim

The Court agrees with Defendants that California law, not Delaware law, applies to their claim that Perzow has breached his fiduciary duty to them.  The Court also agrees with Defendants that, under California law, the FACC states a claim for breach of fiduciary duty.  The FACC contains sufficient allegations that if, as Perzow contends, the Rescission Term restored Perzow's 50% ownership interest in MDI, then Perzow has owed a fiduciary duty to the Defendants ever since the settlement agreement was entered and he has breached that duty.  Perzow's demurrer to the claim for breach of fiduciary duty is thus overruled.

Statute of Limitations 

The first, fifth, sixth, seventh, and eighth causes of action in the FACC are not barred by the three-year statute of limitations applicable to those claims.  As alleged in the FACC, it was not until 2022, when Perzow sued the Defendants premised on his interpretation of the interplay between the Rescission Term and the Release Term. that the Defendants discovered the factual bases of these claims.   The Defendants filed their Cross-Complaint in June 2024, less than three-years after Perzow filed his suit against them.  The demurrer to the first, fifth, sixth, seventh, and eighth causes of action in the FACC is thus overruled to the extent that it is based on statute of liimtations grounds.