Judge: Peter A. Hernandez, Case: 21PSCV00343, Date: 2022-08-23 Tentative Ruling

Case Number: 21PSCV00343    Hearing Date: August 23, 2022    Dept: O

Cross-Defendants Myra Acosta, Daniel Morales and Luis Gonzales’ Demurrer to First Amended Cross-Complaint is SUSTAINED in part (i.e., as to the First through Six, Twelfth and Fifteenth Causes of Action re: Acosta and as to the Fourth and Twelfth Causes of Action re: Morales and Gonzales) and OVERRULED in part (i.e., as to the First through Third, Fifth, Sixth and Fifteenth Causes of Action re: Morales and Gonzales)

Background[1]  

Plaintiffs U.S. Truck Sales, Inc. (“UST”) and South Gate Investment Group, Inc. (“SGIG”) allege as follows:

UST and SGIG are owned by Myra Acosta (“Acosta”); AJG Realty, Inc. (“AJG”) is owned by Armando Garcia (“Garcia”). In 2016, AJG purported to acquire its 50% interest in the property located at 10000 Atlantic Avenue in South Gate, CA 90280 (“Property”) on the basis that it was providing a bridge loan to SGIG/UST, while in reality AJG was conducting a sham § 1031 real property exchange.

On May 24, 2021, UST and SGIG filed a First Amended Complaint, asserting causes of action against AJG, Garcia and Does 1-10 for:

1.                  Rescission of Written Instrument

2.                  Intentional Misrepresentation

3.                  Negligent Misrepresentation

4.                  Concealment

5.                  Declaratory Relief

6.                  Accounting & Contribution

7.                  Violation of Business & Professions Code § 17200

8.                  Quiet Title

On November 1, 2021, the court granted AJG’s and Garcia’s motion to compel arbitration.

On March 23, 2022, AJG and Armando Garcia, Trustee of the AJG Realty, Inc. – 401(k) Plan filed a First Amended Cross-Complaint (“FACC”), asserting causes of action against UST, SGIG, Acosta, Daniel Morales (“Morales”), Luis Gonzales (“Gonzales”) and Does 1-20 for:

1.                  Breach of Fiduciary Duty

2.                  Conversion

3.                  Unfair and Deceptive Business Practices (Bus. & Prof. Code § 17200 et seq.)

4.                  Conspiracy

5.                  Intentional Misrepresentation

6.                  Negligent Misrepresentation

7.                  Fraudulent Transfers in Violation of Civil Code §§ 3439.04(a)(1), 3439.04(a)(2)(A), 3439.04(a)(2)(B) and 3439.05

8.                  Breach of Lease

9.                  Breach of Promissory Note

10.              Accounting

11.              Breach of Contracts

12.              Constructive Trust

13.              Open Book Account

14.              Account Stated

15.              Constructive Fraud

16.              Partition

A Case Management Conference is set for October 4, 2022.

Legal Standard

A demurrer may be made on the grounds that the pleading does not state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).)

When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905 [citations omitted].) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal.App.3d 714, 721.) “[A] demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction placed on an instrument pleaded therein, or facts impossible in law, or allegations contrary to facts of which a court may take judicial knowledge.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 [citations omitted].)

Discussion

Acosta, Morales and Gonzales demur, per Code of Civil Procedure § 430.10, subdivisions (e) and (f), to the first through sixth, twelfth and fifteenth causes of action in the FACC, on the basis that they each fail to state facts sufficient to constitute causes of action and are uncertain. [2]

Meet and Confer

The court is in receipt of the “Supplemental Declaration of Adam Dolce Pursuant to Cal. Code of Civ. Pro §§ 430.41.” The court determines that the parties have adequately met and conferred.

Request for Judicial Notice

The court rules on AJG’s and Garcia’s Request for Judicial Notice (“RJN”) as follows: Granted as to Exhibit 1 (i.e., complaint filed March 12, 2019 in case styled AFC CAL, LLC v. U.S. Truck Sales, Inc., et al., Case No. 19NWCV00224) and Granted as to Exhibit 2 (i.e., complaint filed August 8, 2019 in case styled Entegra Capital LLC v. U.S. Truck Sales Inc., Case No. 19NWCV00632), to the extent that the court takes judicial notice of their respective existence and filing dates.

Merits

At the outset, Acosta, Morales and Gonzales assert that Plaintiff’s causes of action against them fail, to the extent that they are predicated on alter ego. “Under the alter ego doctrine, . . . when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4^th 523, 538.) “The essence of the alter ego doctrine is not that the individual shareholder becomes the corporation, but that the individual shareholder is liable for the actions of the corporation.” (Leek v. Cooper (2011) 194 Cal.App.4^th 399, 415.) “To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.” (Id. [emphasis added].) “Mere ownership of all the stock and control and management of a corporation by one or two individuals is not of itself sufficient to cause the courts to disregard the corporate entity.” (Meadows v. Emett & Chandler (1950) 99 Cal.App.2d 496, 499.)

Here, AJG and Garcia merely cite conclusions of alter ego, with no supporting facts. (FACC, ¶ 10[3].) Further, AJG’s and Garcia’s alter ego allegations do not reference Gonzales whatsoever. AJG and Garcia have also alleged that on or about May 1, 2017 (i.e., in the midst of the dates of the subject transactions identified in the FACC) SGIG “had assets of at least two million dollars” (FACC, ¶ 59), which would seem to contradict any inference of an inadequately capitalized corporation for purposes of alter ego. AJG and Garcia have not alleged that SGIG lost these assets or that these same assets would not be sufficient to avoid an inequitable result.

Further, “[d]irectors and officers of a corporation are not rendered personally liable for its torts merely because of their official positions, but may become liable if they directly ordered, authorized or participated in the tortious conduct.” (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 785.) Personal liability may also attach to shareholders of a corporation for a corporations’ torts if the shareholder “specifically directed or authorized the wrongful acts.”  (Id.) Here, AJG and Garcia have alleged that “[a]s the current President and shareholder of US Truck and SGIG, Acosta consented to and ratified all of the transactions. . .” (FACC, ¶ 5.) The foregoing allegation is a conclusion and fact and does not constitute a sufficient basis to impose personal liability as against Acosta. Acosta’s demurrer to the first through sixth, twelfth and fifteen causes of action is sustained on this basis.

AJG and Garcia, however, have pled facts imposing direct liability as against Morales and Gonzales. AJG and Garcia have alleged that Morales, in addition to being a manager of US Truck, had previously closed down a truck sales business, R&D California Truck Company, Inc. (“R&D”), formed US Truck, transferred all of R&D’s assets to SGIG and US Truck, “installed” his brother Ephrain in as US Truck’s President and sole officer before “install[ing]” his daughter (i.e., Acosta) sometime in 2017 as US Truck’s President and sole officer, “induced” AJG and Garcia into entering into the joint venture agreements, made representations regarding obtaining service contracts in connection with some of the agreements, and admitted to AJG and Garcia on December 15, 2018 that they had sold certain trucks subject to various joint venture agreements, concealed the sales from AJG and Garcia and misappropriated or embezzled the sales proceeds and profits for their own benefit. (FACC, ¶¶ 6, 12, 15, 17 and 19.) AJG and Garcia have alleged that Gonzales was also a manager of US Truck, made representations regarding obtaining service contracts in connection with some of the agreements, falsely advised that service contracts had been purchased but did not cover the repairs on some of the agreements, admitted to AJG and Garcia on December 15, 2018 that they had sold certain trucks subject to various joint venture agreements, concealed the sales from AJG and Garcia and misappropriated or embezzled the sales proceeds and profits for their own benefit, and made other admissions with respect to Trucks 8816 and 8811 regarding the retention of proceeds of a loan and the retention of sales proceeds for cross-defendants’ “own benefit.” (Id., ¶¶ 7, 17 and 19.) Morales’s and Gonzales’s demurrer is overruled in this regard.

Additional arguments raised by Morales and Gonzales are addressed below:

First Cause of Action (i.e., Breach of Fiduciary Duty)

Morales and Gonzales do not raise any arguments with respect to the first cause of action; rather, the only argument raised is by Acosta. Accordingly, Morales’s and Gonzales’s demurrer is overruled.

Second Cause of Action (i.e., Conversion)

Morales and Gonzales assert that the FACC “does not adequately allege that the individual cross-defendants converted corporate proceeds for their own improper use or benefit (individually, that is). Not so. These allegations are set forth in ¶ 17. Morales’s and Gonzales’s demurrer is overruled.

Third Cause of Action (i.e., Unfair and Deceptive Business Practices (Bus. & Prof. Code § 17200 et seq.)

Morales and Gonzales do not raise any arguments with respect to the third cause of action. Accordingly, Morales’s and Gonzales’s demurrer is overruled.

Fourth Cause of Action (i.e., Conspiracy)

“Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4^th 503, 510-511.) Plaintiff has pled direct liability as against Morales and Gonzales. Morales’s and Gonzales’s demurrer is sustained.

Twelfth Cause of Action (i.e., Constructive Trust)

Morales and Gonzales argue that the twelfth cause of action is a remedy, not a cause of action. They are correct. “A constructive trust. . . is an equitable remedy, not a substantive claim for relief.” (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4^th 384, 398 [emphasis theirs].) Morales’s and Gonzales’s demurrer is sustained.

Fifth, Sixth and Fifteenth Causes of Action (i.e., Intentional Misrepresentation, Negligent Misrepresentation and Constructive Fraud)

Morales and Gonzales claim that AJG and Garcia have failed to allege the fifth, sixth and fifteenth causes of action without the requisite specificity required for fraud-based causes of action; in doing so, they reference ¶¶ 36, 41 and 86, but fail to address the sufficiency of the allegations set forth in ¶ 17 pertaining to each of the various joint venture agreements. Morales’s and Gonzales’s demurrer is overruled.