Judge: Randall J. Sherman, Case: 2018-00982195, Date: 2022-09-02 Tentative Ruling
Defendant SSMF Liquidation, LLC’s Motion for Summary Judgment or in the Alternative Summary Adjudication (ROA #842) is denied. Defendant SSMF’s Request for Judicial Notice is granted. However, even though the court is taking judicial notice of SEC filings, it does not accept the truth of matters stated in those documents. Apple, Inc. v. Superior Court (2017) 18 Cal. App. 5th 222, 241 n.6. The court declines to rule on the parties’ evidentiary objections because they are not directed at evidence that the court deems material to its disposition of the motion. CCP §437c(q).
SSMF moved for summary judgment on the ground that plaintiff Richard Carlson lacked standing. Since the filing of this motion, the complaint has been amended to replace Carlson with another beneficiary of the Trust, Rohinton T. Aresh. Since Aresh and Carlson are similarly situated as beneficiaries of the Trust, the analysis is the same. The Maryland Code, which both sides have applied, provides that a non-statutory trust terminates to the extent the trust is revoked or expires in accordance with the terms of the trust. Md. Code Ann., Est. & Trusts §14.5-409(a). Plaintiff has presented evidence that the Trust is not a statutory trust, that the Trust was terminated on January 28, 2014, and under Maryland law, the beneficiaries had an immediate right to possession of the Trust assets on that date. Md. Code Ann., Est. & Trusts §14.5-817(b) (beneficiaries have an immediate right to trust property upon termination of trust); Restatement (Second) of Trusts §281 (1959) (beneficiary may maintain action at law when in possession of the subject matter of the trust). At a minimum, there is a triable issue of fact as to whether plaintiff has standing.
SSMF moves for summary judgment on the ground that plaintiff’s claims are barred by the statute of limitations. The defendant in a securities action bears the initial burden of demonstrating that the plaintiff had inquiry notice. Deveny v. Entropin, Inc. (2006) 139 Cal. App. 4th 408, 429. Inquiry notice arises in a securities action when circumstances suggest to an investor of ordinary intelligence the possibility that he has been defrauded. Id., 139 Cal. App. 4th at 428. SSMF fails to meet its burden to demonstrate that the securities claims against it are barred by the statute of limitations. There is a triable issue of fact as to whether plaintiff had inquiry notice of his claims before 2019. Knowledge of the note does not equate to knowledge of the fraud.
SSMF moves for summary judgment on the ground that plaintiff’s claims against SSMF have been settled and released. However, the settlement excludes “willful misconduct or fraud” from the release. Whether the alleged securities fraud claims against SSMF may be excluded from the release are triable issues of fact.
SSMF moves for summary judgment on the ground that SSMF owed no fiduciary duty to plaintiff or the Trust. However, the First Cause of Action for breach of fiduciary duty is not alleged against SSMF, and SSMF makes no argument and cites no legal authority that the existence of a fiduciary duty is a necessary element of the securities claims asserted against SSMF.
SSMF moves for summary judgment or summary adjudication on the ground that each cause of action fails because the SSMF Note is not a security. California courts have relied on two distinct tests in evaluating an alleged security, the risk capital test and the federal or Howey test. People v. Black (2017) 8 Cal. App. 5th 889, 900. The second prong of Howey requires either an enterprise common to an investor and the seller, promoter, or some third party (vertical commonality) or an enterprise common to a group of investors (horizontal commonality). S.E.C. v. R.G. Reynolds Enterprises Inc. (1991) 952 F.2d 1125, 1130. The facts in this case indicate that SSMF was investing in ARPT, such that it was investing in a common enterprise with respect to a third-party. Ultimately, while plaintiff is incorrect in asserting that any note is automatically a security, SSMF fails to adequately support its assertion that the SSMF Note in this case is not a security based on the facts and the law. See also 15 U.S.C. §78c(a)(10) (the term “security” includes “any note”); Reves v. Ernst & Young (1990) 494 U.S. 56, 67 (“A note is presumed to be a security.”).
SSMF’s remaining requests for summary judgment are denied because the grounds asserted do not support summary judgment on all causes of action. The court declines to rule on SSMF’s requests for summary adjudication on Issue #6-8 and 10-11 because the notice of motion fails to comply with CCP §437c(f)(1) and fails to identify proper issues that may be the subject of a summary adjudication motion. SSMF’s requests for summary adjudication on Issue #9 is denied because it is not clear that a note is not a separate and distinct security from evidence of indebtedness that is not exempt under §25102(e).
Defendant SSMF is ordered to give notice of the ruling unless notice is waived.
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Defendants Gary H. Hunt, Edward A. Johnson, D. Fleet Wallace, Gary Wescombe and W. Brand Inlow’s Trustee Defendants’ Motion for Summary Judgment or, in the Alternative, Summary Adjudication of Issues is denied. The court declines to rule on plaintiff’s evidentiary objections because they are not directed at evidence that the court deems material to its disposition of the motion. CCP §437c(q); Cole v. Town of Los Gatos (2012) 205 Cal. App. 4th 749, 764 n.6 (“Where a trial court is confronted on summary judgment with a large number of nebulous evidentiary objections, a fair sample of which appear to be meritless, the court can properly overrule, and a reviewing court ignore, all of the objections on the ground that they constitute oppression of the opposing party and an imposition on the resources of the court”). The court declines to rule on the Trustee Defendants’ evidentiary objections because they do not comply with the formatting requirements of CRC Rule 3.1354(b) and are not accompanied by a proposed order. Hodjat v. State Farm Mutual Auto. Ins. Co. (2012) 211 Cal. App. 4th 1, 8.
The Trustee Defendants moved for summary judgment on the ground that plaintiff Richard Carlson lacked standing. Since the filing of this motion, the complaint has been amended to replace Carlson with another beneficiary of the Trust, Rohinton T. Aresh. Since Aresh and Carlson are similarly situated as beneficiaries of the Trust, the analysis is the same. The Maryland Code, which both sides have applied, provides that a non-statutory trust terminates to the extent the trust is revoked or expires in accordance with the terms of the trust. Md. Code Ann., Est. & Trusts §14.5-409(a). Plaintiff has presented evidence that the Trust is not a statutory trust, that the Trust was terminated on January 28, 2014, and under Maryland law, the beneficiaries had an immediate right to possession of the Trust assets on that date. Md. Code Ann., Est. & Trusts §14.5-817(b) (beneficiaries have an immediate right to trust property upon termination of trust); Restatement (Second) of Trusts §281 (1959) (beneficiary may maintain action at law when in possession of the subject matter of the trust). At a minimum, there is a triable issue of fact as to whether plaintiff has standing.
The Trustee Defendants move for summary judgment or summary adjudication on the ground that plaintiff’s claims are barred by the statute of limitations. However, knowledge of the sales in 2012 does not equate to knowledge of the facts underlying the breach of fiduciary claim or knowledge that the properties were sold for less than fair market value. Similarly, knowledge of the SSMF Note does not equate to knowledge of the facts underlying the claims related to the SSMF Note. There is a triable issue of fact as to when plaintiff discovered or should have discovered the facts underlying his claims.
The court declines to rule on the Trustee Defendants’ remaining grounds for summary judgment because the notice of motion fails to comply with CCP §437c(a)(1) and identify proper issues that may be the subject of a summary judgment motion.
The Trustee Defendants move for summary adjudication on the First Cause of Action for breach of fiduciary duty and the Tenth Cause of Action for negligence on the ground that there was no breach of duty. However, whether the trustees exercised reasonable care is a triable issue of fact.
The Trustee Defendants move for summary adjudication on the Fourteenth Cause of Action for conversion on the grounds that there was no taking. The Trustee Defendants contend that there are no facts that suggest that they took ownership of any money or property or held any funds from the sale of the properties. However, neither California nor Maryland law require possession or ownership by the defendant as an element of a conversion claim. Interference with the beneficiaries’ property rights would be sufficient.
The Trustee Defendants are ordered to give notice of the ruling unless notice is waived.
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Defendants SCMG Liquidation, Inc. (f/k/a Sovereign Capital Management Group, Inc.), GCL, LLC, Infinity Urban Century, LLC, Todd Mikles and Etienne Locoh’s Sovereign Defendants’ Motion for Summary Judgment or in the Alternative Summary Adjudication is denied. The Sovereign Defendants’ Request for Judicial Notice is granted. However, even though the court is taking judicial notice of SEC filings, it does not accept the truth of matters stated in those documents. Apple, Inc. v. Superior Court (2017) 18 Cal. App. 5th 222, 241 n.6. The court declines to rule on the parties’ evidentiary objections because they are not directed at evidence that the court deems material to its disposition of the motion. CCP §437c(q).
The Sovereign Defendants moved for summary judgment on the ground that plaintiff Richard Carlson lacked standing. Since the filing of this motion, the complaint has been amended to replace Carlson with another beneficiary of the Trust, Rohinton T. Aresh. Since Aresh and Carlson are similarly situated as beneficiaries of the Trust, the analysis is the same. The Maryland Code, which both sides have applied, provides that a non-statutory trust terminates to the extent the trust is revoked or expires in accordance with the terms of the trust. Md. Code Ann., Est. & Trusts §14.5-409(a). Plaintiff has presented evidence that the Trust is not a statutory trust, that the Trust was terminated on January 28, 2014, and under Maryland law, the beneficiaries had an immediate right to possession of the Trust assets on that date. Md. Code Ann., Est. & Trusts §14.5-817(b) (beneficiaries have an immediate right to trust property upon termination of trust); Restatement (Second) of Trusts §281 (1959) (beneficiary may maintain action at law when in possession of the subject matter of the trust). At a minimum, there is a triable issue of fact as to whether plaintiff has standing.
The Sovereign Defendants move for summary judgment on the ground that plaintiff’s claims are barred by the statute of limitations. However, the Sovereign Defendants fail to meet their burden to demonstrate that all claims alleged in the operative complaint are barred by the statute of limitations. There is a triable issue of fact as to whether Plaintiff had inquiry notice of his claims before 2019.
The Sovereign Defendants’ remaining requests for summary judgment are denied because the grounds asserted do not support summary judgment on all causes of action. CCP §437c(a)(1).
The court declines to rule on the Sovereign Defendants’ requests for summary adjudication as to Issue #3-10, 12-25 and 27-30 because the notice of motion fails to comply with CCP §437c(f)(1) and identify proper issues that may be the subject of a summary adjudication motion. The Sovereign Defendants’ requests for summary adjudication as to Issue #11 and 31 are denied because the requests are not properly supported. The Sovereign Defendants’ request for summary adjudication as to Issue #26 is denied because the only remaining conversion claim is asserted against defendant Sovereign Capital Management Holdings, LLC, who is not a moving party to this motion.
The Sovereign Defendants are ordered to give notice of the ruling unless notice is waived.