On Roth v. Anat Group, Inc., et al.

(1) DEFENDANT ANAT GROUP, INC.’S DEMURRER TO COMPLAINT

(2) DEFENDANT MORDECHY ROZENBAUM’S DEMURRER TO COMPLAINT

 

MOVING PARTY: Defendants Anat Group, Inc., and Mordechy Rozenbaum

RESPONDING PARTY(S): Plaintiff On Roth

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff On Roth, as an alleged thirty-five percent owner of Defendant Anat Group, Inc., brings this action for involuntary dissolution of the company under Corporations Code section 1800. Plaintiff alleges that Defendant Mordechy Rozenbaum, the current officer and director of the company, has breached fiduciary duties owed to Plaintiff. 

Defendants now demurrer to all causes of action.  Plaintiff opposed each motion. 

TENTATIVE RULING:

Defendants’ Demurrers to the Complaint are OVERRULED in their entireties. 

Defendants are ordered to file an Answer within 21 days.

Plaintiff is ordered to give notice, unless waived.  

DISCUSSION:

Demurrers to Complaint

I. Judicial Notice

Pursuant to Defendants’ request, the court takes judicial notice of Exhibits 1 through 6.

II. Meet and Confer

The Declaration of Daniel Reback reflects that the meet and confer requirement was satisfied.  (CCP § 430.41.)

III. Legal Standard

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) 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. (Code Civ. Proc., §§ 430.30, 430.70.) 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 of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 (internal citations omitted).)

IV. Analysis

Defendants Rozenbaum and Anat Group demurrer to each cause of action on the grounds they fail to state sufficient facts to constitute a cause of action or are uncertain.  (CCP §§ 430.10(e),(f).) Each is addressed in turn. Because Defendants’ demurrers are largely if not completely identical, the court addresses them together. 

A. Background and Allegations

In 21STCV23656, On Roth v. Roy Pelleg, et al. (the “Previous Case”), Plaintiff On Roth alleged that Defendant Roy Pelleg obtained a 15% stake in Plaintiff’s cannabis business, Anat Group, which possessed a valuable Phase 2 license. Later Plaintiff transferred an additional 50% of the business to Defendant Pelleg under an Irrevocable Undertaking. Pelleg then transferred ownership to his wife, Defendant Ady Batsheva Shifman Pelleg. Plaintiff brought the Previous Case to rescind the transfer of the additional 50% ownership, alleging that Pelleg made material misrepresentations and breached the Irrevocable Undertaking. Plaintiff asserted causes of action for (i) fraud: false promise; (ii) fraud: intentional misrepresentation; (iii) breach of written contract; (iv) breach of fiduciary duty; (v) conversion; (vi) falsifying documents; (vii) extortion; (viii) conspiracy to commit conversion; (ix) constructive trust; (x) violation of Corporation Code sections 213 and 1600; (xi) accounting; and (xii) unfair business practices in violation of Business & Professions Code section 17200. 

On June 23, 2023, this court granted Defendant Pelleg’s motion for terminating sanctions against Plaintiff, dismissing the case with prejudice. (See 06/23/2024 Ruling in 21STCV23656.)

Plaintiff then filed the current case, 24STCV16298 On Roth v. Anat Group, Inc., et al. Here, Plaintiff alleges that Defendant Mordechy Rozenbaum has replaced Defendant Shifman as Anat Group’s sole officer and director without Plaintiff’s knowledge or consent. (Compl. ¶ 35.) Plaintiff further alleges that Defendant Rozenbaum breached fiduciary duties owed to Plaintiff by, among other things, failing to distribute to Plaintiff his share of profits in Anat Group. (Id. ¶¶ 41, 42.) Plaintiff now seeks involuntary dissolution of Anat Group and asserts additional causes of action for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, false impersonation, violations of Corp. Code sections 213 and 1601 et seq., violation of Corp. Code section 1500 et seq., accounting, and violation of Penal Code section 496. 

B. Demurrer based on Res Judicata and Collateral Estoppel 

First, Defendants argue the Current Case is barred by res judicata and collateral estoppel. They assert that “Plaintiff has litigated - - and certainly had an opportunity to litigate - - the same causes of action alleged in this Second Action that Plaintiff alleged in the First Action.” (Dem. 6: 18-20.) 

The doctrine of res judicata precludes the re-litigation of certain matters which have been resolved in a prior proceeding under certain circumstances. (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 556.) “Res judicata, or claim preclusion, prevents re-litigation of the same cause of action in a second suit between the same parties or parties in privity with them.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896.) “Res judicata applies if (1) the decision in the prior proceeding is final and on the merits; (2) the present proceeding is on the same cause of action as the prior proceeding; and (3) the parties in the present proceeding or parties in privity with them were parties to the prior proceeding.” (Fed'n of Hillside & Canyon Associations v. City of Los Angeles (2004) 126 Cal.App.4th 1180, 1202.)

When applying res judicata, “the key issue is whether the same cause of action is involved in both suits. California law approaches the issue by focusing on the ‘primary right’ at stake: if two actions involve the same injury to the plaintiff and the same wrong by the defendant then the same primary right is at stake even if in the second suit the plaintiff pleads different theories of recovery, seeks different forms of relief and/or adds new facts supporting recovery.” (Deleon v. Verizon Wireless (2008) 88 Cal.Rptr.3d 29, 35.) “As far as its content is concerned, the primary right is simply the plaintiff's right to be free from the particular injury suffered…” (Villacres v. ABM Indus. Inc. (2010) 189 Cal.App.4th 562, 575–76.)

Collateral estoppel, or issue preclusion, bars re-litigation of the same issues that were argued and decided in the previous action. (DKN Holdings, LLC v. Faerber (2015) 61 Cal.4th 813, 824.) The elements of issue preclusion are “(1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party.” (Id. at p. 825.) “The party asserting collateral estoppel bears a ‘heavy’ burden of proving all of these factors (Pacific Lumber, supra, 37 Cal.4th at p. 943)[.]” (Kemp Bros. Construction, Inc. v. Titan Electric Corp. (2007) 146 Cal.App.4th 1474, 1482, parallel citations omitted.) Like res judicata, “the principle of collateral estoppel does not depend on the legal theory used but the primary right asserted.” (Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, 1237.)

Here, neither issue preclusion nor claim preclusion bar the Current Case because the two cases involved different primary rights. The Previous Case was not about any wrongdoing in the management of the business—it was about the manner Defendants obtained ownership in the first place. Whereas Plaintiff sought to set aside the transfer of ownership in Anat Group to Defendants in the Previous Case, Plaintiff now challenges the manner in which Defendants are operating the business. By the Current Case, Plaintiff effectively concedes—as he must—that Defendants are valid owners of Anat Group.

With this in mind, Defendants have not met their heavy burden to demonstrate the action is barred by issue or claim preclusion, and the demurrer on this basis fails.  [FN 1]

C. Demurrer based on Plaintiff’s Lack of Standing 

Next, Defendants argue that Plaintiff lacks standing to bring this action because he is not an owner of AGI. They rely on Plaintiff’s allegations in the Previous Case alleging that “[a]lthough [Plaintiff] purportedly owns a 35% interest in AGI, he has never received documents showing said ownership.” (FAC in Previous Case ¶ 37.) 

However, Plaintiff’s admission that he did not “receive[] documents showing [his] ownership” of AIG does not mean he is not an owner. When viewed in context, Plaintiff routinely alleges in the Previous Case and the Current Case that he is an owner of AIG. (See Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal. App. 4th 1068, 1078 [court “must accept[] as true all well pleaded facts” in the complaint when ruling on a demurrer].) This is sufficient for pleadings purposes to establish Plaintiff’s ownership and standing, and the demurrer on this basis fails.

D. Derivative Complaint

Next, Defendants argue Plaintiff must bring the action derivatively on behalf of Anat Group. 

“[An] action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.” [Citations.] In contrast, a stockholder's individual suit is “a suit to enforce a right against the corporation which the stockholder possesses as an individual.” [Citations.] (Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, 1257 [citing Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93].)

Here, the “gravamen” of the Complaint is harm to Plaintiff individually based on him being effectively “shut[] out” from the business by Defendants despite owning over a third of it. (Compl. ¶¶ 41, 42.) Therefore, the action need not be brought derivatively, and the demurrer on this basis fails.

E. Sixth Cause of Action for Violations of Corp. Code Sections 213 and 1601

Next, Defendants first argue there is no recognized cause of action under these Corporations Code sections. 

In relevant part, Corp. Code section 213 provides that “[e]very corporation shall keep at its principal office in this state…the original or a copy of its bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours.” Similarly, Section 1601 provides that “[t]he accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation…shall be open to inspection…upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to the holder’s interests as a shareholder or as the holder of a voting trust certificate.” 

Notably, under section 1603(a), “[u]pon refusal of a lawful demand for inspection, the superior court of the proper county, may enforce the right of inspection with just and proper conditions…” In other words, the Corporations Code establishes a private right of action by a shareholder who is denied his or her right to inspection. Therefore, Defendant’s argument fails.

Second, Defendant contends again that Plaintiff is not a shareholder of AGI. However, Plaintiff alleges in the Current Complaint that he is a 35% shareholder. (Compl. ¶ 16.) Even though Plaintiff might not have the documents to prove it, this allegation must be accepted as true at this stage. 

Third, Defendant contends that even assuming Plaintiff has a right to inspect, Plaintiff does not have “unfettered access” to the books. But this argument goes to the appropriate extent of the inspection, not the propriety of the cause of action as a whole. (See Fremont Indem. Co. v. Fremont Gen. Corp. (2007) 148 Cal. App. 4th 97, 119 [“A demurrer must dispose of an entire cause of action to be sustained”].) Thus, for purposes of a demurrer, Plaintiff has alleged a cause of action for an inspection. 

Accordingly, Defendant’s Demurrer to the Sixth Cause of Action is OVERRULED.

F. Eighth Cause of Action for Accounting

Finally, Defendant argues Plaintiff’s accounting cause of action fails because an accounting is not justified or appropriate. 

“A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.”  (Teselle v. McLoughlin, (2009) 173 Cal. App. 4th 156, 179.)  “[T]he nature of a cause of action in accounting is unique in that it is a means of discovery. An accounting is a ‘species of disclosure, predicated upon the plaintiff's legal inability to determine how much money, if any, is due. [Citation.] Thus, the purpose of the accounting is, in part, to discover what, if any, sums are owed to the plaintiff, and an accounting may be used as a discovery device.”  (Id. at 180.)  

Here, as an alleged owner of AGI who has effectively been shut out of the business, Plaintiff has alleged a “relationship” between him and Defendants to maintain the cause of action for pleading purposes. 

Accordingly, Defendants’ Demurrer to the Eighth Cause of Action is OVERRULED.

Defendants’ Demurrers to the Complaint are OVERRULED in their entireties. 

IT IS SO ORDERED.

Dated:   October 30, 2024 ___________________________________