Judge: Richard Y. Lee, Case: 30-2020-01173139, Date: 2023-07-27 Tentative Ruling

Defendants NIMA ALIMAGHAM, AMIR HOSSEINDOOST, and KIASRAM KHAJEOURI (collectively, “Defendants”), move for an order granting summary judgment on the First Amended Complaint (“FAC”) or, in the alternative, for summary adjudication on the following issues, in favor of Defendants and against plaintiffs KOUROSH NATTAGH and SAGEDMOJTABA MOSTAFAVI GHAHFAROKHI (collectively, “Plaintiffs”):

•  The 1st Cause of Action based on “Promissory Fraud” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1). The cause of action (1) is for an illegal object; and/or (2) there is no triable issue of material fact as to the element of “intent not to perform.”

•  The 2nd Cause of Action for “Declaratory and Injunctive Relief” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1) . The cause of action is for an illegal object in that is seeks the Court to adjudicate the respective rights of plaintiffs and defendants to an illegal business operating under a partnership that never legally formed and is contractually void.

•  The 3rd Cause of Action for “Accounting” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1) . The cause of action is for an illegal object in that is seeks the Court to order an accounting of an illegal business operating under a partnership that never legally formed and is contractually void.

•  The 4th Cause of Action for “Unfair Competition - Cal. Bus. & Prof. Code §17200 et seq” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1). The conduct complained of is an internal dispute between members of a single illegal business enterprise. There is no likelihood that the consuming public will be deceived. The cause of action is statutorily unavailable to unlicensed cannabis sellers.

•  The 5th Cause of Action for “Breach of Fiduciary Duty” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1) . The cause of action is for an illegal object in that is seeks the Court to adjudicate the rights of plaintiffs in an illegal business operating under a partnership that never legally formed and is contractually void.

•  The 7th Cause of Action for “Breach of Contract” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1) . The cause of action is for an illegal object in that is seeks the Court to adjudicate the rights of plaintiffs in an illegal business operating under a partnership that never legally formed and is contractually void.

•  The unnumbered Cause of Action for “The Alter Ego Doctrine” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1) . Alter ego is not an independent/stand-alone cause of action. The claim is nonsensical because defendant corporation belonged 100% to plaintiffs. The only causes of action plaintiffs plead are against their own corporation (i.e. Accounting and Unfair Competition) for which defendants had no ownership.

Initially, the Court notes that Defendants’ motion fails to comply with California Rules of Court, Rule 3.1113(b), which requires that a “memorandum must contain a statement of facts, a concise statement of the law, evidence and arguments relied on, and a discussion of the statutes, cases, and textbooks cited in support of the position advanced.” (CRC, 3.1113(b).)  Defendants’ memorandum fails to contain a statement of facts, but instead contains merely an “Introduction” in which Defendants mention two facts: (1) that the parties “got together” with the intention of creating a marijuana (cannabis) dispensary; and (2) no California license was obtained to sell cannabis as required by Business and Professions Code Section 26050, et seq.  Otherwise, there is no meaningful or helpful discussion of the facts of the case, relationship of all the parties, summary of evidence, discussion of the status of the pleadings and discovery, etc. as is typical in the statement of facts and points and authorities in these types of motions.

Despite this failure to comply, the Court exercises its discretion to proceed to the merits of the motion.

MOTION FOR SUMMARY JUDGMENT

Defendants moving for summary judgment bear the burden of persuasion that one or more elements of the cause of action in question “cannot be established,” or that “there is a complete defense” thereto.  (Aguilar v. Atlantic Richfield Co. (2001) 25 C4th 826, 850, 861.)  The moving party bears the initial burden of production to make a prima facie showing that there are no triable issues of material fact.  (Id. at 850.)

Here, Defendants argue that summary judgment is warranted because each cause of action fails as they each seek adjudication of matters arising out of and/or internal to an illegal enterprise.  Specifically, Defendants appear to argue that their own alleged failure to obtain a cannabis license deems the parties’ agreement and all matters arising therefrom void.

In support of this, Defendants rely solely on the FAC as “evidence” of judicial admissions that there was an illegal contract and/or that the business itself was illegal.  Defendants refer to allegations that the purpose of the parties’ relationship was to operate a cannabis dispensary, that Defendants promised to obtain a cannabis license, and that no cannabis license was obtained (FAC ¶¶ 12, 13, 14, 26.)  However, none of these allegations – nor do any other portions of the FAC cited by Defendants – contain admissions of fact that the parties entered into an illegal contract or entered into the contract with intent to conduct an illegal business.  Further, Defendants do not cite to any authority holding that Defendants’ failure to fulfill its promise to obtain a cannabis license deems the contract illegal and bars any causes of action arising therefrom.  Moreover, Defendant does not address the allegation that at least during some point in time the business operated legally:  “Defendant Taoist Temple of Supreme Purity corporation was, at the beginning a valid and legitimate corporation, until Defendants seized operating as a corporation, closed the bank account and commenced operating on an all cash basis approximately four months into the operations.”  (FAC ¶ 7.)

As such, Defendants have failed to meet their initial burden, and the motion for summary judgment is DENIED.

MOTION FOR SUMMARY ADJUDICATION

ISSUE “2”: The 1st Cause of Action based on “Promissory Fraud” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1). The cause of action (1) is for an illegal object; and/or (2) there is no triable issue of material fact as to the element of “intent not to perform.”

Here, Defendants’ argument (1) fails for the reasons set forth above.

As to (2), Defendants appear to argue that Plaintiffs cannot demonstrate all of elements of promissory fraud.  “The elements of fraud that will give rise to a tort action for deceit are: (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.  Promissory fraud is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence where a promise is made without such intention, there is a misrepresentation of fact that may be actionable fraud. An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract.” (Lazar v. Superior Ct. (1996) 12 Cal.4th 631, 638 [internal quotations and citations omitted].)

Specifically, Defendants argue that Plaintiffs cannot demonstrate Defendants’ intent not to perform.  In support of this, Defendants again solely rely on allegations of the FAC.  Defendants argue that the FAC only contains “three factual averments of mere nonperformance”, and such nonperformances do not demonstrate Defendants’ intent not to perform because proof that a promise was made but not fulfilled is insufficient to prove fraud.  However, Defendants have not discussed or demonstrated how such specific allegations are unequivocal admissions of an absence of intent to perform.  Indeed, the FAC alleges to the contrary – that “[a]t all times Defendants made promises, they did not intend to perform said promises.”  (FAC ¶ 31.)  Further, Defendants have not demonstrated by any other admissible evidence, such as a signed declaration, that Defendants actually intended to perform the promises.

Defendants also argue that their alleged promises as to the profitability of the business or the opening of additional stores are nonactionable predictions and/or expressions of opinion.  The Court declines to rule on whether these are nonactionable.  Even if they are nonactionable, the cause of action is not disposed of because it also is based on the actionable promise that Defendants would obtain a cannabis license.

Therefore, the motion is DENIED as to this issue.

ISSUES “3, 4, 6, 7”

•        Issue 3: The 2nd Cause of Action for “Declaratory and Injunctive Relief” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1). The cause of action is for an illegal object in that it seeks the Court to adjudicate the respective rights of plaintiffs and defendants to an illegal business operating under a partnership that was never legally formed and is contractually void.

•        Issue 4: The 3rd Cause of Action for “Accounting” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1). The cause of action is for an illegal object that seeks the Court to order an accounting of an illegal business operating under a partnership that was never legally formed and is contractually void.

•        Issue 6: The 5th Cause of Action for “Breach of Fiduciary Duty” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1). The cause of action is for an illegal object that seeks the Court to adjudicate the rights of plaintiffs in an illegal business operating under a partnership that was never legally formed and is contractually void.

•        Issue 7: The 7th Cause of Action for "Breach of Contract” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1). The cause of action is for an illegal object that seeks the Court to adjudicate the rights of plaintiffs in an illegal business operating under a partnership that was never legally formed and is contractually void.

The motion for summary adjudication as to the above issues is DENIED for the same reasons that the motion for summary judgment is denied.

ISSUE 5: The 4th Cause of Action for “Unfair Competition - Cal. Bus. & Prof. Code §17200 et seq” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1). The conduct complained of is an internal dispute between members of a single illegal business enterprise. There is no likelihood that the consuming public will be deceived. The cause of action is statutorily unavailable to unlicensed cannabis sellers.

Defendants argue that summary adjudication is proper because business was an illegal enterprise.  For the reasons stated above, this is without merit.

Defendants also argue that summary adjudication is proper because “the UCL is only available [as] a remedy when an actual license has been issued to a licensed marijuana dispensary,” and here, there was no license.  In support of this, Defendants cite Business & Professions Code § 26051. (Memo, 16:10-17.)  However, Defendants misread Section 26501, which section simply states that the UCL applies to all licensees regulated under the Medicinal and Adult-Use Cannabis Regulation and Safety Act.  It does not stand for the proposition asserted by Defendants that the UCL only applies when a license has been issued.

Defendants further argue that summary adjudication is proper because “the universal test [as to what constitutes unfair competition] is whether the public is likely to be deceived”  (Memo 16:18-19) and the FAC contains no allegations that the public is deceived by Defendants’ practices.  The Court notes this should have been an argument for a motion attacking the FAC, and not for a motion intended to determine whether a party has sufficient evidence in support of its causes of action.  Nonetheless, the authorities cited by Defendants are inapplicable here, as they involve allegations of trademark violations by which defendants copied plaintiff’s business designs (Grant v. California Bench Co. (1946) 76 Cal.App.2d 706) and deceptive advertising of food products (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197).

Accordingly, the motion is DENIED as to this issue.

ISSUE 8: The unnumbered Cause of Action for “The Alter Ego Doctrine” has no merit pursuant to Code of Civil Procedure Section 437c(f)(1). Alter ego is not an independent/stand-alone cause of action. The claim is nonsensical because defendant corporation belonged 100% to plaintiffs. The only causes of action plaintiffs plead are against their own corporation (i.e., Accounting and Unfair Competition) for which defendants had no ownership.

Defendants argue that alter ego is not a cause of action. While true, this, like the previous argument, should have been presented in a motion attacking the First Amended Complaint, and not in a summary judgment/adjudication motion.  Further, alter ego can ultimately be raised at the trial; at a hearing to determine the true identity of the judgment debtor, or even in a separate action subsequent to the action against the fictitious corporate defendant.  (Hennessey's Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal.App.3d 1351, 1358.)  Therefore, motion is denied as to Issue 8.

Plaintiff’s Objection (ROA 207) is OVERRULED.

Defendants’ Evidentiary Objections to the Declaration of Ghafaroki (ROA 216) are OVERRULED.

Defendants’ Evidentiary Objections to the Declaration of Nattagh (ROA 214) are OVERRULED except as to Objection No. 7, which is SUSTAINED.

Plaintiff to give notice.