Judge: Peter A. Hernandez, Case: 24STCV21653, Date: 2025-01-23 Tentative Ruling
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Case Number: 24STCV21653 Hearing Date: January 23, 2025 Dept: 34
1.
Defendants Daryoush Dayan and 7101
Sunset Managing Member Inc.’s Demurrer to Plaintiff Kourosh Dayan’s Complaint
is OVERRULED.
2.
Defendant Shaoul Levy’s Demurrer to
Plaintiff Kourosh Dayan’s Complaint is OVERRULED.
3.
Defendant Shaoul Levy’s Motion to
Strike Portions of Plaintiff Kourosh Dayan’s Complaint is DENIED.
Background
On August 23, 2024,
Plaintiff Kourosh Dayan (“Plaintiff”) filed a complaint against
Defendants Daryoush Dayan, Shaoul Levy, and 7101 Sunset Managing Member Inc.
(“Defendants”) arising from ownership of commercial real estate assets alleging
causes of action for:
1.
Breach of
Fiduciary Duty; and
2.
Breach of
Contract.
On November 12, 2024, Defendants Daryoush Dayan and
7101 Sunset Managing Member Inc. filed this Demurrer to Plaintiff’s complaint. On
January 9, 2024, Plaintiff filed an opposition.
On November 22, 2024 Defendant Shaoul Levy filed
this Demurrer and Motion to Strike. On January 9, 2024, Plaintiff filed
oppositions.
1.
Defendants Daryoush Dayan and 7101
Sunset Managing Member Inc.’s Demurrer
Legal
Standard
“The party against whom a complaint
or cross-complaint has been filed may object, by demurrer or answer as provided
in Section 430.30, to the pleading on any one or more of” various grounds
listed in statute. (Code Civ. Proc., § 430.10.)
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 pleading alone,
and not the evidence or facts alleged.” (E-Fab, Inc. v. Accountants,
Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such, the court assumes
the truth of the complaint’s properly pleaded or implied factual allegations. (Ibid.)
The only issue a demurrer is concerned with is whether the complaint, as it
stands, states a cause of action. (Hahn v. Mirda (2007) 147
Cal.App.4th 740, 747.)
Where a demurrer is sustained, leave
to amend must be allowed where there is a reasonable possibility of successful
amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is
on the plaintiff to show the court that a pleading can be amended successfully.
(Id.; Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) However,
“[i]f there is any reasonable possibility that the plaintiff can state a good
cause of action, it is error to sustain a demurrer without leave to amend.” (Youngman
v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245).
Discussion
Request
for Judicial Notice
Defendants
Daryoush Dayan and 7101 Sunset Managing Member Inc.’s
request for judicial notice is granted as to exhibits A, F, and I, and denied
as to all other exhibits. “A court may properly take judicial notice
of its own records. (Evid. Code, § 452, subd. (e).)” (Garcia v. Sterling
(1985) 176 Cal.App.3d 17, 21.)
Merits
Defendants Daryoush Dayan and 7101
Sunset Managing Member Inc. (“Moving Defendants”) demur, pursuant to Code of
Civil Procedure section 430.10, subdivisions (e), to the first and second
causes of action for breach of a fiduciary duty and breach of contract in
Plaintiff’s complaint, on the basis that Plaintiff fails to state facts
sufficient to constitute causes of action.
1st
Cause of Action – Breach of Fiduciary Duty
“The
elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary
relationship, breach of fiduciary duty, and damages.” (Oasis West
Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820.) “A fiduciary relation in law is ordinarily
synonymous with a confidential relation. It is also founded upon the trust or
confidence reposed by one person in the integrity and fidelity of another, and
likewise precludes the idea of profit or advantage resulting from the dealings of the parties and
the person in whom the confidence is reposed.” (Rickel v. Schwinn Bicycle
Co. (1983) 144 Cal.App.3d 648, 654, quoting Bacon v. Soule (1912) 19
Cal.App. 428, 434.) “Traditional examples of fiduciary relationships in the
commercial context include trustee/beneficiary, directors and majority
shareholders of a corporation, business partners, joint adventurers, and
agent/principal.” (Wolf v. Superior Court (2003) 107 Cal.App.4th 25,
30.)¿
Moving Defendants
argue that Plaintiff makes conclusory allegations that Moving Defendants Daryoush
Dayan is an immediate family member. (Demurrer,
at p. 11.) Moving Defendants contend that such allegations overstate the
limited fiduciary duties owed to Plaintiff. (Id., at p. 12.) Moving
Defendants argue that the mere existence of a close family relationship does
not create a fiduciary duty. (Ibid.) Moreover, Moving Defendants contend
that the only fiduciary duty owed to Plaintiff are those duties California Corporations
Code section 17704.09 imposes upon the manager of a limited liability company
which are limited to a duty of care and loyalty. (Id., at p. 13.) Moving
Defendants also argue that Plaintiff’s allegations do not demonstrate a breach
of a fiduciary duty. (Ibid.) Moving Defendants also point to Corporations
Code section 17704.09(f)(3) which provides that “a member does not have any
fiduciary duty to the limited liability company or to any other member solely
by reason of being a member” in a manager-managed LLC. (Id.,
at p. 14.)
In
opposition, Plaintiff argues that fiduciary duties arise from the control and
influence a party has over a company. (Opp., at p. 5.) Plaintiff contends that
Moving Defendants do not seem to deny that they have control and influence over
the companies in question imposing a fiduciary duty. (Ibid.)
In the
complaint, Plaintiff alleges that Defendants owed a fiduciary duty of loyalty
and to act with the utmost good faith towards Plaintiff as managing members and
business partners in closely held entities. (Complaint, ¶ 33.) Plaintiff also
alleges that Defendants breached such duties by refusing to allow Plaintiff to exercise
his rights under the operating agreement to purchase the membership interests
of the companies at issue and by attempting to release the debt Defendants owe
to these companies. (Id., ¶ 34.) As a result, Plaintiff suffered harm. (Id.,
¶ 36.) The court finds these allegations are sufficient to plead a cause of
action for a fiduciary against Moving Defendants.
The
demurrer is overruled as to the first cause of action.
2nd
Cause of Action – Breach of Contract
To
state a cause of action for breach
of contract, Plaintiff must be able to establish
“(1) the existence of the contract, (2) plaintiff’s performance or excuse for
nonperformance, (3) defendant’s breach, and (4) the resulting damages to the
plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811,
821.)
Moving Defendants argues that Plaintiff
alleges the breach of the operating agreements for the corporate entities
involved, and the breach of loan agreements between Defendants and the
companies. (Demurrer, at p. 14.) Moving Defendants contend that Plaintiff fail
to plead sufficient facts to support a claim for breach of any of these
contracts. (Ibid.) As to the operating agreement, Moving Defendants
argue that it is clear that the selling members are only required to transfer
their interests to the purchasing member once the purchasing member delivers a
cash payment. (Id., at p. 15.) As such, Moving Defendants note that the
allegations establish that Plaintiff refused to make this cash payment
eliminating Defendants’ obligation to transfer their interests of the corporate
entities and therefore did not breach. (Ibid.) As to the loan
agreements, Moving Defendants argue that Plaintiff fails to allege any facts
establishing the formation of any agreement between the parties for the terms
of the loans made to the companies’ members by the companies. (Ibid.)
In opposition, Plaintiff argues that
Moving Defendants ask the court to resolve factual issues pertaining to the
breach of the operating agreements which is improper for a demurrer. (Opp., at
p. 7.) Plaintiff also argues that the covenant of good faith and fair dealing imposed
by the loans between the companies and Defendants provides grounds to allege
the cause of action for breach of contract. (Id., at p. 8.)
Plaintiff alleges that a contract
exists pointing to the operating agreement and Defendants promise to repay
loans provided by the corporate entities at issue. (Complaint, ¶ 39.) Plaintiff
also alleges full performance. (Id., ¶ 40.) Plaintiff then alleges a breach
by Defendants of bother the operating agreement and loan repayments which
resulted in Plaintiff’s damage. (Id., ¶¶ 41-42.) The court finds that
Plaintiff sufficiently alleges a cause of action for breach of contract. Additionally,
"'[t]he hearing on
demurrer may not be turned into a contested evidentiary hearing through the
guise of having the court take judicial notice of documents whose truthfulness
or proper interpretation are disputable.'" (Richtek USA, Inc. v. uPI Semiconductor Corporation (2015) 242 Cal.App.4th
651, 660 (quoting Fremont Indemnity Co. v. Fremont General Corp. (2007)
148 Cal.App.4th 97, 113-14).) Moving Defendants attempt to bring forth facts
for the court to determine that Plaintiff’s cause of action for breach of
contract fails or that no contract existed for the repayment of the loans. Such
determination is improper for a demurrer.
The demurrer is
overruled as to the second cause of action.
2.
Defendant Shaoul Levy’s Demurrer
Legal
Standard
See above.
Discussion
Request
for Judicial Notice
Defendant
Shaoul Levy’s request for judicial notice is granted as to exhibits A,
E, G, H, I and j, and denied as to all other exhibits.
“A court may properly take judicial notice of its own records. (Evid. Code, §
452, subd. (e).)” (Garcia v. Sterling (1985) 176 Cal.App.3d 17, 21.)
Merits
Defendant Shaoul Levy (“Levy”) demurs,
pursuant to Code of Civil Procedure section 430.10, subdivisions (e), to the
first and second causes of action for breach of a fiduciary duty and breach of
contract in Plaintiff’s complaint, on the basis that Plaintiff fails to state
facts sufficient to constitute causes of action.
Standing
Levy argues that Plaintiff lacks
standing to pursue claims on behalf of the entities involved as Plaintiff has
not satisfied the procedural requirements to bring a derivative suit by failing
to allege demand refusal or futility. (Demurrer, at pp. 20-21.)
The court does not find Levy’s
argument persuasive as Plaintiff alleges that “making a demand on
Defendants to approve the filing of this claim on behalf of Nominal Defendants
would have been futile as Defendants themselves are guilty of breaching
fiduciary duties owed to Nominal Defendants. It would thus not be reasonable to
expect Defendants to have consented to a suit against themselves.”
(Complaint, ¶ 35.) As such, Plaintiff has sufficiently alleged a basis for
standing to bring his claims against Defendants.
1st
Cause of Action – Breach of Fiduciary Duty
Levy argues that Plaintiff fails to
state a cause of action for breach of fiduciary duty as Levy is only a member
of the manager-managed entities. (Demurrer, at p. 15.) As such, Levy argues
that he does not owe a fiduciary duty to the other members of the corporate
entities under Corporations Code section 17704.09(f)(3). (Ibid.)
In opposition, Plaintiff continues
to argue that fiduciary duties arise from the control and
influence a party has over a company imposing a duty on Levy who has a
managerial role in one of the entities at issue. (Opp., at p. 6.)
The
complaint alleges that Levy is a principal and director of Defendant 7101
Sunset Managing Member Inc., a Delaware corporation. (Complaint, ¶ 4.) As such,
“an officer who participates in management of the
corporation, exercising some discretionary authority, is a fiduciary of the
corporation as a matter of law.” (GAB Business Services, Inc. v. Lindsey
& Newsom Claim Services, Inc. (2000) 83 Cal.App.4th 409, 420-21,
disapproved on other grounds by Reeves v. Hanlon (2004) 33 Cal.4th
1140.) The court finds that Plaintiff sufficiently pleads that Levy owed a
fiduciary duty. Moreover, as analyzed above, Plaintiff sufficiently pleads a cause
of action for breach of fiduciary duty.
The
demurrer is overruled as to the first cause of action.
2nd
Cause of Action – Breach of Contract
Levy argues that as the complaint
fails to attach the complete operating agreements nor the loan agreements that
were allegedly breached, Plaintiff’s breach of contract cause of action fails. (Demurrer,
at p. 16.) Moreover, Levy argues that Plaintiff does not allege facts stating
that he performed his own contractual obligations. (Id., at pp. 16-17.)
Lastly, Levy argues that Plaintiff fails to allege facts that would establish
that Levy breached the contracts at issue. (Id., at p. 19.)
The
court finds that Plaintiff sufficiently pleads a cause of action for breach of
contract against Levy.
Plaintiff sufficiently alleges the
existence of both the operating agreements and loan agreements at issue. If a breach
of contract claim “is based on alleged breach of a
written contract, the terms must be set out verbatim in the body of the
complaint or a copy of the written agreement must be attached and incorporated
by reference.” (Harris v. Rudin, Richman & Appel (1999) 74
Cal.App.4th 299, 307.) Here, Plaintiff attaches the operating agreements.
(Complaint, Exhs. 1, 2.) In some circumstances, a plaintiff may also “plead the
legal effect of the contract rather than its precise language.” (Construction
Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189,
198-199.) Here, Plaintiff makes such allegations as to the loan agreements to
support its breach of contract claim. (Complaint, ¶¶ 21-27.)
Additionally, as discussed
above, Plaintiff sufficiently pleads his performance of all terms required by
the contract or excused. (Id., ¶ 40.) Plaintiff also pleads Defendants
breach, including Levy’s breach, of both alleged contracts at issue. (Id.,
¶ 41.)
The
demurrer is overruled as to the second cause of action.
3.
Defendant Shaoul Levy’s Motion to
Strike
Legal
Standard
Pursuant to
Code of Civil Procedure section 436, “the court may, upon a motion made
pursuant to Section 435, or at any time in its discretion, and upon terms it
deems proper: (a) Strike out any irrelevant, false, or improper matter inserted
in any pleading. (b) Strike out all or any part of any pleading not drawn or
filed in conformity with the laws of this state, a court rule, or an order of
the court.” The grounds for a motion to strike must “appear on the face of the
challenged pleading or from any matter of which the court is required to take
judicial notice.” (Code Civ. Proc., § 437.)
Discussion
Punitive
Damages
Levy moves the court to strike
Plaintiff’s request for punitive damages.
Punitive
damages may be recovered upon a proper showing of malice, fraud, or oppression.
(Civ. Code, § 3294(a).) “Malice” is defined as conduct intended to cause injury
to a person or despicable conduct carried on with a willful and conscious
disregard for the rights or safety of others. (Turman v. Turning Point of
Cent. Cal., Inc. (2010) 191 Cal.App.4th 53, 63.) “Oppression” means
despicable conduct subjecting a person to cruel and unjust hardship, in
conscious disregard of the person’s rights. (Ibid.) “Fraud” is an
intentional misrepresentation, deceit, or concealment of a material fact known
by defendant, with intent to deprive a person of property, rights or otherwise
cause injury. (Ibid.) Conclusory allegations, devoid of any factual
assertions, are insufficient to support a conclusion that parties acted with
oppression, fraud, or malice. (Smith v. Superior Court (1992) 10
Cal.App.4th 1033, 1042.)
“In order to survive a motion to
strike an allegation of punitive damages, the ultimate facts showing an
entitlement to such relief must be pled by a plaintiff.” (Clauson v.
Superior Court (1998) 67 Cal.App.4th 1253, 1255.) “In passing on the
correctness of a ruling on a motion to strike, judges read allegations of a
pleading subject to a motion to strike as a whole, all parts in their context,
and assume their truth.” (Ibid.) “In ruling on a motion to strike,
courts do not read allegations in isolation.” (Ibid.) Conclusory
allegations, devoid of any factual assertions, are insufficient to support a
conclusion that parties acted with oppression, fraud or malice. (Smith v. Superior Court (1992) 10
Cal.App.4th 1033, 1042.)
Levy argues that
Plaintiff fails to allege facts demonstrating that Levy is guilty of oppression,
fraud, or malice and instead makes conclusory allegations. (Motion to Strike,
at p. 6.)
In opposition, Plaintiff argues that the
complaint has sufficiently pled how Defendants acted with malice and oppression
throughout the complaint. (Opp., at p. 2.)
The court finds that Plaintiff
made sufficient allegations for his request of punitive damages as Plaintiff
alleges that Defendants Daryoush Dayan and Levy made conscious efforts to
frustrate the sale of their interest in the entities to Plaintiff. (Complaint,
¶¶ 28-31.)
The motion to strike is denied.
Attorney’s
Fees
Levy moves the court to strike
Plaintiff’s request for attorney’s fees.
Attorney’s fees are
recoverable only when authorized by contract, statute, or law. (Code Civ. Proc.
§ 1033.5, subd. (a)(10).)
Levy argues that Plaintiff does not
identify any contractual or statutory basis under which Plaintiff could recover
his attorney’s fees as none of the contract attached to the complaint contains
an attorney’s fees provision. (Motion to Strike, at p. 7.)
In opposition, Plaintiff argues that
the operating agreements which were subject to the court’s judicial notice show
an attorney’s fees provision in paragraphs 6.2. (Opp., at p. 3.) Additionally,
Plaintiff argues that there are multiple statutory basis to recover attorney’s
fees, including shareholder derivative actions. (Ibid.)
After a review of the judicially
noticed operating agreements in Levy’s request for judicial notice, the court
finds that there is a provision that would entitle Plaintiff to recover
attorney’s fees. (RJN, Exhs. A and E, ¶ 6.2)
The motion to strike is denied.
Conclusion
1.
Defendants Daryoush Dayan and 7101
Sunset Managing Member Inc.’s Demurrer to Plaintiff Kourosh Dayan’s Complaint
is OVERRULED.
2.
Defendant Shaoul Levy’s Demurrer to
Plaintiff Kourosh Dayan’s Complaint is OVERRULED.
3.
Defendant Shaoul Levy’s Motion to
Strike Portions of Plaintiff Kourosh Dayan’s Complaint is DENIED.