Judge: Peter Wilson, Case: 2021-01191735, Date: 2023-08-31 Tentative Ruling
Defendant GP Asset Resolution LLC (GPAR) generally and specially demurrers to the First (breach of fiduciary duty), Second (aiding and abetting breach of fiduciary duty), Third (negligence) and Fourth (receipt of stolen property) causes of action in the Third Amended Complaint (TAC).
A general demurrer challenges the legal sufficiency of a complaint on the ground that it fails to state facts sufficient to constitute a cause of action. (Code Civ. Proc. § 430.10(e).) The allegations in the complaint as a whole must be reviewed to determine whether a set of alleged facts constitutes a cause of action. (People v. Superior Court (Cahuenga’s the Spot) (2015) 234 Cal.App.4th 1360, 1376.) A complaint need only meet fact-pleading requirements, which requires a statement of facts constituting a cause of action in ordinary and concise language, and should allege ultimate facts that, as a whole, apprise defendant of the factual basis of the claim. (Code Civ. Proc. §425.10(a)(1); Navarrete v. Meyer (2015) 237 Cal.App.4th 1276, 1284.)
A demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading but is directed at the uncertainty existing in the allegations actually made. (People v. Lim (1941) 18 Cal. 2d 872, 883. “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal. App. 4th 612, 616.) Errors and confusion created by “the inept pleader” are to be forgiven if the pleading contains sufficient facts entitling plaintiff to relief. (Saunders v. Cariss (1990) 224 Cal. App. 3d 905, 908.) A party attacking a pleading on “uncertainty” grounds must specify how and why the pleading is uncertain, and where that uncertainty can be found in the challenged pleading. (Fenton v. Groveland Community Services Dept. (1982) 135 Cal.App.3d 797, 809 (disapproved on other grounds in Katzberg v. Regents of the University of California (2002) 29 Cal.4th 300.)
1st COA for Breach of Fiduciary Duty - OVERRULED. It is black-letter law that a requisite element of a claim for breach of fiduciary duty is the existence of a fiduciary duty. (Mendoza v. Cont’l Sales Co. (2006) 140 Cal. App. 4th 1395, 1405-06 [elements of breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) its breach, and (3) damages proximately caused by that breach].) As such, GPAR argues that Plaintiffs’ breach of fiduciary duty cause of action fails as a matter of law because GPAR did not owe any fiduciary duty to Plaintiffs. GPAR contends that as the assignee in the assignment for the benefit of creditors (ABC), the only duty it owed was to the creditors. Additionally, GPAR argues that although Clark alleges he is a creditor of GrowthPoint, there are no facts alleged in the TAC to support this conclusion. ROA 1552, Mem. Supp., p. 9.
Plaintiffs respond that GPAR owed them statutory and contractual duties because as assignee in the ABC, GPAR is “considered a representative of the assignor, not the assignor’s creditors.” ROA 1561, Opp., p. 7. Further, the TAC expressly alleges that Clark is a creditor based on the indemnity obligations in the Separation Agreement. ROA 1561, Opp., p. 11. Plaintiffs point out that this Court has already determined in prior rulings on demurrers that Clark is a creditor. Id.
Further, analogizing GPAR’s role to that of a trustee, Plaintiffs argue that GrowthPoint “is a beneficiary of the estate” because it “has a right to reconveyance of any property remaining after the creditors are satisfied or to the surplus proceeds after liquidation.” Id. at p. 7. See also, TAC, ¶89-90, 111, 112. Thus, Plaintiffs contend that GPAR owes fiduciary duties to GrowthPoint and its shareholders.
“An assignment for the benefit of creditors is a business liquidation device available to an insolvent debtor as an alternative to formal bankruptcy proceedings.” (Credit Managers Assn. v. National Independent Business Alliance (1984) 162 Cal.App.3d 1166, 1169. See also, Code Civ. Proc. § 493.010) The assignee stands in the place of the assignor and takes the assignor’s property in trust for the creditors and is charged with protecting the property against all fraudulent claims. (Id. at 1170-1171. See also, Sherwood Partners, Inc. v. EOP-Marina Bus. Ctr. L.L.C. (2007) 153 Cal.App.4th 977, 983 [ABC transaction “was an assignment for the benefit of the creditors, pursuant to which [assignee], as a disinterested party, would liquidate and distribute assets of [business] to creditors”].)
There is no dispute that GPAR owes GrowthPoint’s creditors a fiduciary duty.
As both sides point out, the TAC expressly alleges that Clark is a creditor
of GrowthPoint. The TAC expressly alleges “Mr. Clark was a creditor and
shareholder of GP as he was owed, among other obligations indemnity,
including pursuant to the Separation Agreement.” TAC, ¶122. Further, the TAC
alleges that Clark “would face personal liability on the Fidelity
construction bonds” and that in the Separation Agreement, GrowthPoint expressly
agreed to indemnify Clark “for any personal liability, including specifically
the over $11 million in Fidelity’s bonds, for which Mr. Clark was otherwise
personally liable.” TAC, ¶¶70, 78. See also, TAC, ¶143. These factual
allegations are sufficient to show Clark was a creditor of GrowthPoint, and
consequently, the TAC sufficiently alleges GPAR did owe Clark a fiduciary
duty.
None of the cases Plaintiffs cite actually hold that an assignee in an ABC transaction owes a fiduciary duty to the assignor. Nevertheless, Plaintiffs contend that analogous cases support a finding that GPAR owed GrowthPoint a fiduciary duty.
California courts have compared an assignee’s role in an ABC transaction with that of a trustee. (Berg & Berg Enterprises, LLC v. Sherwood Partners, Inc. (2005) 131 Cal.App.4th 802 [appellate court confirmed the assignee “does owe a fiduciary duty to the creditors…and that its role is akin to that of a trustee or administrator of an estate who owes fiduciary duties to the estate’s beneficiaries.”]; ABC Services Group, Inc. v. United HealthCare Services, Inc. (USDC, C.D. Cal. 2019) 2019 WL 4137624 [assignee and assignor entered into an assignment agreement and a power of attorney agreement that permitted assignee to liquidate and distribute assignor’s assets in accordance with assignor’s wishes, and the district court found the assignee was akin to an agent or bankruptcy trustee].)
A trustee has a duty to manage and conserve estate property for the benefit of another. (Moeller v. Superior Court (1997) 16 Cal.5th 1124, 1133-1134.) “When a debtor retains an interest in estate assets – either by properly claiming exemptions or because surplus property will remain in the estate after all creditors have been compensated – the trustee owes a fiduciary duty to the debtor as well.” (Slaieh v. Simons (C.D. Cal. 2018) 584 B.R. 28, 41, citing Wisdom v. Gugino (9th Cir. 2016) 649 Fed.Appx. 583, 584. See also, In re Stoll (9th Cir. 2000) 252 B.R. 492, 495 fn. 4 [When as in this case an estate will have a surplus that will be returned to the debtor after all of the creditors have been paid in full, the debtor has an economic interest in the estate that is similar to that held by the creditors who will be paid from the estate.”]; First Nat. Bank of Stockton v. Pomona Tile Mfg. Co. (1947) 82 Cal. App. 2d 592, 602–03, 186 P.2d 693 [“the assignor's interest in the subject matter of the assignment is what remains after the secured obligation has been satisfied, and … once the secured obligation has been discharged, the assignee for security holds the excess as agent or trustee for the assignor (citations omitted).”])
The TAC alleges that GrowthPoint was entitled to “excess proceeds after secured creditors are repaid. This duty applies even where the likelihood of excess proceeds is unlikely. But in this case, where [GrowthPoint’s] assets were well above the value of its debts, there should have been excess proceeds available to [GrowthPoint] and its shareholders if GPAR had properly handled the ABC.” TAC, ¶111. See also, TAC, ¶¶ 112-115. As such, Plaintiffs have alleged a factual situation in which an assignee or trustee would owe fiduciary duties to the debtor assignor.
Consequently, there are sufficient allegations to establish a fiduciary duty owed to GrowthPoint.
2nd COA for Aiding and Abetting Breach of Fiduciary Duty – OVERRULED. GPAR contends the aiding and abetting claim fails because the allegations do not show any agreement between GPAR and any other party, and that GPAR cannot aid and abet itself.
“Liability may be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.” (Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.app.4th 1138, 1145.)
The TAC alleges that GPAR aided and abetted the breaches of fiduciary duty of WS and Pickell, “including, without limitation, by participating in, authorizing, ratifying, assisting with, orchestrating, and controlling the ABC transaction under which WS acquired for itself the assets and going concern business of [GrowthPoint] for grossly inadequate consideration of at most $2 million”. TAC, ¶130. The TAC specifically alleges that GPAR knew WS and Pickell owed fiduciary duties to GrowthPoint and its shareholders, that GPAR aided and abetted WS’s and Pickell’s breach of fiduciary duties by participating in and facilitating the transfer of GrowthPoint’s assets to WS’s subsidiary, and triggering Pickell’s incentive payment, at an amount grossly under value, among other things, and without ensuring that the ABC transaction was properly approved. TAC, ¶¶113-119, 130-135.
These allegations are sufficient to satisfy the requirements for aiding and abetting under Casey. The TAC alleges how GPAR provided substantial assistance to WS and Pickell to wrongfully obtain GrowthPoint’s assets and take control over GrowthPoint, and GPAR breached its fiduciary duties to GrowthPoint as previously discussed.
3rd COA for Negligence - OVERRULED. A requisite element for a claim for negligence is the existence of a legal duty owed to the plaintiff. (See Williams v. Beechnut Nutrition Corp. (1986) 185 Cal. App. 3d 135, 141 [the elements to prove a negligence cause of action are (1) the existence of a legal duty of care owed to plaintiff, (2) breach of that duty, (3) injury proximately caused by that duty, and (4) damages to plaintiffs].)
GPAR essentially makes the same argument here that it makes with the breach of fiduciary cause of action, i.e. that it only owes a duty to the creditors of GrowthPoint, which neither of the Plaintiffs are. ROA 1552, Mem. Supp., pp. 10-11. Plaintiffs in turn rely on their arguments regarding the breach of fiduciary cause of action, i.e. that GPAR owes them statutory and contractual duties, as discussed above. ROA 1651, Opp., p. 11:22-25.
For the same reasons as previously discussed, GPAR does owe duties to Plaintiffs.
10th COA for Receiving Stolen Property under Cal. Penal Code § 496 - OVERRULED. GPAR argues that there are no facts alleged against GPAR that it is the subject of the acts alleged. GPAR contends there are no factual allegations to show that it was involved in the conduct alleged by Plaintiffs. ROA 1552, Mem. Supp., p. 11. GPAR also argues the allegations regarding its actions are vague, unintelligible and uncertain.
“[T]he elements required to show a violation of section 496(a) are simply that (i) property was stolen or obtained in a manner constituting theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the defendant received or had possession of the stolen property.” (Switzer v. Wood (2019) 35 Cal. App. 5th 116, 126, 247 Cal. Rptr. 3d 114, 121, as modified (2019).) Penal Code § 496(a) applies when property has bene obtain in any manner constituting “theft” including larceny, embezzlement, theft by false pretenses, and diversion of funds. (Id. at 126-127; Carreon v. Edwards (E.D. Cal. 2022) 2022 WL 4664569, *5, citing Siry Inv., L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 361.)
Following Siry, the Carreon court found that the plaintiff had adequately alleged receipt of stolen property under Penal Code § 496:
Here, Plaintiff alleges that she entrusted Defendants with her equitable interest in the Property, relying upon Defendants’ oral representations that they would not foreclose on Plaintiff's interest in the Property without notice. (ECF No. 23 at 14–15.) Plaintiff further alleges Defendants breached their contractual and extracontractual duties by failing to provide Plaintiff with notice before Defendants foreclosed on her interest in the Property. (Id. at 15.) Thus, Plaintiff alleges Defendants fraudulently concealed all evidence of the fraudulent foreclosure and transfer in order to “steal” the Property from Plaintiff. (Id.) Plaintiff claims that Defendants intentionally deprived Plaintiff of notice to steal the Property without legal opposition. (Id.)
(2022 WL 4664569, at *5.)
The TAC alleges Pickell and WS gained control of GPAR through misrepresentations and false promises (TAC, ¶¶70-76), that GPAR was aware that Pickell did not have the authority to cause the ABC transfer and that no advance notice was provided to the shareholders (TAC, ¶¶15, 19, 84, 109, 113, 117, 119, 196, 197), that GPAR received GrowthPoint’s assets knowing the assets had been obtained fraudulently and through false pretenses (TAC, ¶¶197-200), and that GPAR facilitated the transfer of GrowthPoint’s assets to Crate Modular for an amount that was severely undervalued without conducting any due diligence. TAC, ¶¶135, 199, 200.
Contrary to GPAR’s arguments, these allegations are sufficient to show that GPAR was aware of and participated in “stealing” GrowthPoint’s assets.
GPAR is ordered to give notice.