Judge: Michael Small, Case: 24STCV28386, Date: 2025-06-10 Tentative Ruling

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

Case Number: 24STCV28386    Hearing Date: June 10, 2025    Dept: 57

Pending before the Court is the demurrer of Defendant Richard Butler ("Richard") to the second and third causes of action in the First Amended Complaint ("FAC") of Plaintiff Tracy Butler ("Tracy"). 

The second cause of action is for breach of fiduciary duty against Richard.   Tracy asserts this cause of action derivatively upon behalf of Defendant Ron’s Lube N’ Tune Inc., (“RLNT”).  Richard contends in the demurrer that the allegations in the FAC fail to show that Tracy has standing to bring a shareholder's derivative action on RLNT's behalf under Corporations Code Section 800(b).  The Court disagrees with Richard.  Section 800(b) requires a plaintiff bringing a shareholder's derivative action on behalf of a corporation to allege that the plaintiff is shareholder of the corporation and that the plaintiff made efforts to secure the action desired of the corporation's board, or the reasons for not making that effort, and that the plaintiff has either informed the corporation or the board in writing of the ultimate facts of the causes of action against the defendant(s) or delivered to the corporation or the board a true copy of the complaint that the plaintiff intends to file.  The FAC alleges that Tracy and Richard are the sole shareholders, officers, and directors of RLNT.  The FAC also details efforts Tracy made to persuade her fellow-shareholder and board-member Richard to take particular corporate actions that she asserted needed to be taken.  And the FAC alleges that Tracy informed the corporation/Richard in writing through  a cease and desist letter of the ultimate facts of the causes of action that she intended to bring.  All told, the FAC adequately alleges Tracy's standing to sue Richard derivatively on behalf of RLNT for breach of fiduciary duty.  Richard's demurrer to the breach of fiduciary duty claim is thus overruled.

The third cause of action in the FAC is for an accounting.  Richard contends in the demurrer that Tracy failed to allege in the FAC whether she is bringing the accounting claim on behalf of herself or derivatively on behalf of RLNT.  Tracy concedes this oversight.  The demurrer is sustained on this ground with leave to amend.  If in the next iteration of the complaint Tracy alleges that she is bringing the accounting claim derivatively, she will have to allege as well her standing under Corporations Code Section 800(b) to do so.  Richard also contends in the demurrer that the FAC contains insufficient allegations to support the accounting claim.  The Court agrees with Richard and is sustaining the demurrer on that ground as well, with leave to amend.  "A cause of action for accounting requires a showing that a relationship exists between the plaintiff and defendant that requires and accounting, and that some balance is due [to] the plaintiff that can only be ascertained by an accounting."  (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.)   The FAC fails to plead that an amount is due either to Tracy or RLNT that is so difficult to ascertain that it cannot be calculated without an accounting. 

Also pending before the Court is Richard's motion to strike paragraphs 26-30 in the FAC on the grounds that the allegations therein contain communications, negotiations, or settlement discussions that happened during the course of a mediation between Richard and Tracy and that are privileged under the Evidence Code.   Tracy conceded in her opposition to the motion that paragraphs 26 and 27 should be stricken.   In his reply brief, Richard withdrew the request to strike paragraphs 29 and 30.  This leaves paragraph 28 as the only paragraph in dispute with respect to the motion to strike. Paragraph 28 states that in the mediation, Richard and Tracy agreed on behalf of RLNT to enter into a stipulated judgment in an unlawful detainer action that had been brought against RLNT.  This reference to what was agreed to at mediation should be stricken. Richard's motion to strike is thus granted with respect to paragraphs 26, 27, and 28 and denied as to paragraphs 29 and 30.