Judge Nick A. Dourbetas, Case 2021-01222149 2022-10-14 Tentative Ruling

Judge: Nick A. Dourbetas, Case: 2021-01222149, Date: 2022-10-14 Tentative Ruling

1. Motion to compel Defendants to Produce Documents and Answer Interrogatories Released to their Net Worth and Financial Conditions

2. Motion for Summary Judgment and/or Adjudication

No. 1

Plaintiff Scott Killips’ motion for pretrial discovery of financial condition is DENIED.

Plaintiff’s motion is based on his first cause of action for fraud. (Motion P&As at p. 1.)

Plaintiff has failed to demonstrate that he is “very likely” to prevail on this claim. (See Civ. Code, § 3295, subd. (c); I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257, 283 [“ ‘a “substantial probability” of prevailing on a claim for punitive damages means that it is “very likely” that the plaintiff will prevail on such a claim or there is a “ ‘strong likelihood’ ” that the plaintiff will prevail on such a claim’ ”].)

Plaintiff’s attached opposition papers show the defendants disclosed the substantial loans made by LaTour to BTB on 12/10/18, prior to plaintiff’s final decision to make his investment on 12/13/18. (Compare Compl. ¶ 11, with Motion P&As at Ex. 1 [Draft Opp. to MSJ/A–O’Conner Decl. ¶ 4, Ex. D (Killips Depo., Vol. 1, 24:3-25:13, 29:16-33:12), see also exhibit 17 at p. BtB005791 under “defendants’ exhibits referenced in plaintiff’s opposition to summary judgment”].)

Further, nothing in plaintiff’s attached opposition papers shows that the alleged misrepresentations concerning LaTour not having more than 50% of the equity of BTB, or having contributed $500,000 in capital/equity to BTB (see Compl. ¶ 10; see also Motion P&As at Ex. 1 [Draft Opp. at pp. 11-12]), were false. (See Motion P&As at Ex. 1, in passim; see also id. at Ex. 1 [Draft Opp. to MSJ/A–O’Conner Decl. ¶ 4, Ex. C (LaTour Depo. 8:18-9:18, 10:1-5)].)

Defendants shall give notice.

No. 2

Defendants Before the Butcher, LLC (BTB) and Donn LaTour’s (LaTour) motion for summary judgment/adjudication is DENIED in its entirety. (See Code Civ. Proc., § 437c, subds. (a), (p)(2) [burden]; Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851 [same].)

Defendants’ memorandum of points and authorities addresses the claims in the complaint out of order. The ruling below addresses the claims in the same order as they are presented in defendants’ memorandum of points and authorities.

2nd cause of action for breach of written employment agreement and implied covenant of good faith and fair dealing. Defendants have failed to meet their initial burden to show that this claim has no merit. Defendants contend that this claim is governed by Delaware law, but whether Delaware or California law applies here is of no consequence because they provide the same with respect to the issues raised by this motion. Under both California and Delaware law, a valid enforceable contract exists when the parties intended that the contract would bind them, the terms of the contract are sufficiently definite, and the parties exchange legal consideration. (Eagle Force Holdings, LLC v. Campbell (Del. 2018) 187 A.3d 1209, 1212-1213; see Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 208-209; Civ. Code, § 1550.)

Under both states’ laws, the fact that the parties manifest an intent to prepare and adopt a written memorial will not prevent contract formation if the evidence reveals manifestations of assent that are in themselves sufficient to conclude a contract. (Loppert v. WindsorTech, Inc. (Del. Ch. 2004) 865 A.2d 1282, 1287-1288 (Loppert); J.B.B. Investment Partners Ltd. v. Fair (2019) 37 Cal.App.5th 1, 11-12 (J.B.B. Investment Partners); see also Donovan v. RRL Corp. (2001) 26 Cal.4th 261, 276 [citing Rest.2d Contracts, § 27, where it provides, in part, “Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof...”].)

Here, defendants’ own evidence shows the parties negotiated the terms of plaintiff’s employment agreement via email, and objectively manifested an intent to be bound to those terms. (See Defs. Appendix of Exhibits (AOE) at Ex. 15; see also Defs. SSUF Nos. 10, 16, 19.) Specifically, the content of the parties’ email exchange from 11/19/18-11/20/18, as well as their subsequent conduct consistent with the terms of employment set forth in that exchange, evince objective manifestations of the parties’ intent to be bound by the terms set forth in the email exchange, and demonstrates the existence of an employment agreement consisting of at least those terms, even if the parties also contemplated a subsequent formal writing. (See J.B.B. Investment Partners, supra, 37 Cal.App.5th at pp. 11-12; Loppert, supra, 865 A.2d at p. 1288; see also Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1449 [“In instances ... where there is no evidence that the parties specifically agreed, or even discussed, how the interest rate was to be adjusted, the conduct of the parties after the execution of the contract, and before any controversy arose, may be considered in order to attempt to ascertain the parties’ intention.”].) Thus, defendants’ own evidence demonstrates a triable issue of material fact as to the existence of the employment agreement, and defendants have failed to meet their initial burden to show otherwise.

Further, the complaint alleges the employment agreement required 30 days’ notice of termination, but that defendants fired plaintiff without notice (Compl. ¶¶ 11, 16), and defendants have not negated these allegations or shown that they lack merit. (See Defs. AOE at Ex. 15 [11/19/18-11/20/18 email exchange]; see also id. at Ex. 14 [12/7/18 draft of formal employment agreement, requiring 30 days’ written notice of termination, suggesting that this what the parties’ in fact intended by the term requiring “30 days’ notice of either party” in prior email exchange].) This notice term is not contingent on any length of employment, as defendants attempt to insinuate. (See id at Ex. 15.)

1st cause of action for fraud. Defendants have failed to meet their initial burden to show this claim has no merit. Defendants’ evidence includes plaintiff’s discovery responses/deposition testimony, which clarify that what plaintiff means by the allegation that LaTour misrepresented “that [his] entire investment in the company was equity” in order to induce plaintiff into making a $50,000 investment for a 2.5% ownership interest in BTB (Compl. ¶ 10)—is that LaTour misrepresented that he had made a capital contribution of $500,000 in equity (as opposed to a loan) to BTB. (See Defs. AOE at Exs. 6 [Killips Depo., Vol. 1, 28:8-29:10, 36:10-39:13, 43:2-5, 152:2-16], 16 [plaintiff’s response to special interrogatory No. 6], 9 [subject BTB operating agreement, schedule 3.1].)

Defendants argue plaintiff’s fraud claim fails because, among other things, LaTour in fact “invested $500,000 in Preferred Units to finance BTB’s operations” (Defs. SSUF No. 6), but defendants’ evidence cited in support of this fact does not actually demonstrate that LaTour did in fact make a capital contribution of $500,000 at or before 12/1/18 (see Defs. SSUF No. No. 6, evidence cited in support thereof), i.e., the date of BTB’s amended and restated operating agreement (hereinafter, the BTB operating agreement), reflecting said capital contribution (see Defs. AOE at Ex. 9 [BTB operating agreement, schedule 3.1]), or at any time before plaintiff ultimately decided to make the investment of $50,000 on 12/13/18 (see Defs. SSUF No. 2; Defs. AOE at Ex. 6 [Killips Depo., Vol. 1, 24:3-25:20]).

4th for breach of fiduciary duty. Defendants have failed to meet their initial burden to show this claim has no merit. Delaware law governs this claim, because the fiduciary duties owed by a managing member to a limited liability company and other members fall squarely within the company’s internal affairs and corporate governance. (See Colaco v. Cavotec SA (2018) 25 Cal.App.5th 1172, 1189-1191 [internal affairs doctrine, generally].)

Although some of the allegations in the complaint with respect to the fourth cause of action for breach of fiduciary duty appear in part to be derivative in nature, the primary thrust of the claim is direct, as the complaint alleges LaTour’s conduct harmed plaintiff’s individual ownership interest in BTB specifically, separate and apart from any harm to the company as a whole, and the only damages the complaint actually seeks are those personal to him. (See Compl. ¶¶ 12-20, 39-41 & at the prayer; see also Tooley v. Donaldson, Lufkin & Jenrette, Inc. (Del. 2004) 845 A.2d 1031, 1033 (Tooley) [two-part test for direct versus derivative claims]; Hindlin v. Gottwald (Del. Ch., July 22, 2020, No. CV 2019-0586-JRS) 2020 WL 4206570 at *7 [applying Tooley in LLC context].) In other words, plaintiff is alleging harm to his ownership interest specifically. Not all of BTB’s members suffered harm; LaTour’s ownership interest has been provided for and compensated, but plaintiff’s ownership interest has not. (See id. ¶¶ 19-20.)

Defendants’ contentions as to the scope of LaTour’s fiduciary duties ignore and fail to address certain pertinent portions of BTB’s operating agreement. While section 7.3 of the operating agreement partially modifies a member’s duties to BTB and other members by expressly allowing a member to consider his own personal interests when exercising his duties as a manager (Defs. AOE at Ex. 9 [BTB operating agreement section 7.3]), nothing in the operating agreement eliminates a manager’s fiduciary duties all together, or allows the manager to ignore his affirmative obligations/duties set forth in the operating agreement. (See, e.g., Defs. AOE at Ex. 9 [BTB operating agreement, particularly sections 3.7, 9.8].)

Section 9.8 implicitly requires notice of a “Sale of the Company,” defined as including a sale of substantially all of BTB’s assets, and explicitly requires an accounting of each preferred unit holder/member’s interests as specified in the event of such a sale. (See Defs. AOE at Ex. 9 [BTB operation agreement, sections 1.1, 9.8(a)-(b), see also sections 3.2(c), 3.7(b), 4.5].) Plaintiff was one of two such preferred unit holders/members of BTB. (Id. at Ex. 9 [BTB operating agreement, schedule 3.1].) Section 7.3 cannot be interpreted as granting LaTour the power to consummate the sale of BTB without any notice to plaintiff or an accounting of plaintiff’s interests whatsoever, as this would effectively render all of section 9.8 superfluous. (See Sunline Commercial Carriers, Inc. v. CITGO Petroleum Corporation (Del. 2019) 206 A.3d 836, 846 [“The contract must ... be read as a whole, giving meaning to each term and avoiding an interpretation that would render any term ‘mere surplusage.’”]; see also Carson v. Mercury Ins. Co. (2012) 210 Cal.App.4th 409, 420 [same]; Civ. Code, § 1641.)

Defendants fail to address these affirmative obligations and have further failed to show that LaTour did not breach/had no duty to comply with these obligations.

3rd cause of action for violation of Business and Professions Code section 17200 (UCL). Defendants have failed to meet their initial burden to show this claim has no merit. Contrary to defendants’ contentions, defendants have not met its initial burden to demonstrate that the predicate claims fail.

5th cause of action for accounting. Defendants have failed to meet their initial burden to show this claim has no merit. As discussed above, defendants have failed to meet their initial burden to demonstrate that the predicate claims fail. Further, an equitable claim for accounting may be properly tethered to a claim for breach of fiduciary duty, and all that is required to state the claim is a relationship between the plaintiff and the defendant that requires an accounting, and some balance due to the plaintiff that can only be ascertained by an accounting. Plaintiff need not establish a contractual right to inspect BTB’s records to maintain the claim. (See Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179-180 [equitable accounting claim, elements].)

Objections. The court declines to rule on defendants’ objections to plaintiff’s evidence, which are immaterial to the disposition of the motion. (See Code Civ. Proc., § 437c, subd. (q) [“the court need rule only on those objections to evidence that it deems material to its disposition of the motion”].)

Defendants shall give notice.