Judge Robert B. Broadbelt, Case Number: 22STCV12850, Date: 2023-09-05 Tentative Ruling

Judge: Robert B. Broadbelt, Case: 22STCV12850, Date: 2023-09-05 Tentative Ruling

The court considered the moving, opposition, and reply papers filed in connection with each demurrer.

Plaintiff Stefanie Pollack (“Plaintiff”) filed the operative First Amended Complaint in this action on January 3, 2023, against defendants Dennis Chernov (“Chernov”) and 12227 Valleyheart, LLC (“Valleyheart”). Plaintiff alleges 10 causes of action for (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) breach of fiduciary duty; (4) fraud; (5) negligent misrepresentation; (6) conversion; (7) unjust enrichment; (8) money had and received; (9) civil violations of Penal Code section 496; and (10) intentional interference with prospective economic advantage.

Two demurrers are pending before the court. First, Chernov moves the court for an order sustaining his demurrer to each cause of action alleged against him in the First Amended Complaint (i.e., the first through ninth causes of action). Second, Valleyheart moves the court for an order sustaining its demurrer to the 10th cause of action for intentional interference with prospective economic advantage.

The court overrules Chernov’s demurrer to the First Amended Complaint because it states facts sufficient to constitute a cause of action since the face of the pleading does not show that Plaintiff’s causes of action are derivative, and not individual.

“Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.” (Code Civ. Proc., § 367.) “An action is derivative, that is, 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.” ’” (Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 425.)

The court acknowledges that Plaintiff appears to allege harm to the partnership. (FAC ¶¶ 40 [“In addition to depriving the partnership of the $1,000,000 profit . . . .”], 63, subd. (j) [Chernov breached his fiduciary duties to both Plaintiff and the partnership by, inter alia, embezzling from the partnership the $1,000,000 in partnership assets].) However, Plaintiff has also alleged that (1) she was “defrauded . . . out of her share of commissions[;]” (2) Chernov received commissions and additional compensation that he “failed to equally share with Plaintiff[;]” and (3) Chernov “never satisfied his obligations to tender 50% of the revenues received to Plaintiff.” (FAC ¶¶ 40, 45-46, 48, 54, 59, 64, 76, 83, 88, 91, 98, 101, 106.) Thus, Plaintiff appears to allege injury not only to the partnership, but also to Plaintiff as an individual on the ground that Chernov did not provide to Plaintiff one half of the commissions she was owed.

The court overrules Chernov’s demurrer to the First Amended Complaint because Chernov has not met his burden to show that the demurrer should be sustained as to each cause of action on the ground that Plaintiff is barred from maintaining this action for the collection of the compensation described in the First Amended Complaint.

“No person engaged in the business or acting in the capacity of a real estate broker or a real estate salesperson within this state shall bring or maintain any action in the courts of this state for the collection of compensation for the performance of any of the acts mentioned in this article without alleging and proving that he or she was a duly licensed real estate broker or real estate salesperson at the time the alleged cause of action arose.” (Bus. & Prof. Code, § 10136.) Thus, “[a] plaintiff seeking to recover compensation for acts for which a real estate license was required must allege that he or she possessed the required license at the time the cause of action arose.” (MKB Management, Inc. v. Melikian (2010) 184 Cal.App.4th 796, 802.)

Chernov argues that (1) Plaintiff alleges that she strategized the timing for the sale of the subject property and submitted an offer to the seller, but (2) a real estate broker’s license is required for that conduct (i.e., to solicit prospective sellers or buyers of real property or business opportunities and to submit an offer of purchase), and Plaintiff alleges that she and Chernov were “licensed real estate salespersons[,]” not real estate brokers. (FAC ¶¶ 17-18; Bus. & Prof. Code, § 10131, subds. (a), (d).) Thus, Chernov argues that Plaintiff cannot maintain this action since Plaintiff seeks compensation for these acts. (Bus. & Prof. Code, § 10136; MKB Management, Inc., supra, 184 Cal.App.4th at p. 802.) In opposition, Plaintiff asserts that “two licensed real estate agreements may agree to share commissions earned” under some circumstances, including the factual circumstance alleged in the First Amended Complaint. (Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1030.)

However, as noted by Plaintiff in opposition, the causes of action alleged in the First Amended Complaint also appear to seek compensation for conduct falling outside the scope of this statutory scheme, i.e., to recover an equal share of all “the profits generated by the Property, from whatever source derived[,]” including profits received upon the sale. (FAC ¶¶ 11, 44.) Chernov does not address this issue in his reply. The court therefore finds that Chernov has not met his burden to show that the demurrer should be sustained as to each cause of action alleged in the First Amended Complaint under this theory, and the court does not rule on whether portions of the First Amended Complaint are improper.

The court overrules Chernov’s demurrer to the First Amended Complaint because it states facts sufficient to constitute a cause of action since Plaintiff has sufficiently alleged that Plaintiff and Chernov entered into a partnership agreement to jointly market the subject property and equally share in the profits generated thereby. (Code Civ. Proc., § 430.10, subd. (e); FAC ¶ 11; Eng v. Brown (2018) 21 Cal.App.5th 675, 694 [“In general, ‘the association of two or more persons to carry on as coowners a business for profit forms a partnership”].)

Chernov contends that Plaintiff cannot recover commissions (1) under Business and Professions Code sections 10136 and 10137, (2) because such a claim is barred by the statute of frauds, and (3) because the partnership agreement, as alleged, is entirely illegal since it was formed for the purpose of performing acts for which a real estate broker’s license is required.[1] This argument has the same defect as set forth above, namely, that Chernov has not met his burden to show that it is clear from the face of the First Amended Complaint that Plaintiff seeks only “compensation for the performance of any of the acts mentioned in this article[,]” since Plaintiff also appears to allege that she is entitled to profits derived from the subsequent sales of the property and its development. (Bus. & Prof. Code, § 10136; FAC ¶ 24.)

The court overrules Chernov’s demurrer to the First Amended Complaint because the court finds that Chernov has not met his burden to show that the demurrer should be sustained on the ground that Plaintiff has not joined a necessary party (Keller Williams), because (1) Chernov bases this contention on the assertion that Plaintiff has alleged that Keller Williams “has possession of commissions[,]” but (2) the allegation cited to in support of this contention does not assert that Keller Williams still retains control over all or part of the commissions. (Code Civ. Proc., § 430.10, subd. (d); FAC ¶ 14 [Plaintiff requested Keller Williams prepare a Seller’s Estimated Closing Statement to “discuss the net proceeds due to the seller under a given purchase price”].)

The court overrules Chernov’s demurrer to the second cause of action for breach of the implied covenant of good faith and fair dealing because it states facts sufficient to constitute a cause of action and is not superfluous of the first cause of action for breach of contract since (1) the breach of contract cause of action is based on the allegation that Chernov breached the parties’ agreement by completing three further transactions, for which he received a commission, profit, or other proceeds and failing to deliver to Plaintiff a 50 percent share of that revenue, and (2) the breach of implied covenant of good faith and fair dealing cause of action is based on the allegation that Chernov breached the covenant by (i) transferring the property to an entity wholly owned by him, and (ii) failing to acknowledge the partnership agreement with Plaintiff, which go “beyond the statement of a mere contract breach[.]” (Code Civ. Proc., § 430.10, subd. (e); FAC ¶¶ 54, 58; Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.)

The court overrules Chernov’s demurrer to the third cause of action for breach of fiduciary duty because it states facts sufficient to constitute a cause of action since the court has concluded, as set forth above, that Plaintiff has sufficiently alleged the existence of a partnership. (Code Civ. Proc., § 430.10, subd. (e); Demurrer, p. 11:6-8 [breach of fiduciary duty claim fails “because the Parties never formed a partnership”].)

The court overrules Chernov’s demurrer to the fourth cause of action for fraud because it states facts sufficient to constitute a cause of action since (1) Plaintiff has sufficiently alleged that she relied on Chernov’s representations; (2) “[j]ustifiable reliance is ordinarily a question of fact that is not properly determined on demurrer[,]” and (3) the court reasonably concludes, on the face of the First Amended Complaint, that it was reasonable for Plaintiff to rely on Chernov’s representations given their agreement to enter into a partnership. (Code Civ. Proc., § 430.10, subd. (e); FAC ¶ 66; Amiodarone Cases (2022) 84 Cal.App.5th 1091, 1111.)

The court overrules Chernov’s demurrer to the fifth cause of action for negligent misrepresentation because it states facts sufficient to constitute a cause of action since, although Plaintiff appears to characterize this claim as one for intentional misrepresentation by asserting that Chernov had knowledge of the falsity of his statements (an element of a fraud cause of action) in paragraphs 79 and 89 instead of solely alleging that Chernov did not have reasonable ground for believing those representations to be true (an element of a negligent misrepresentation cause of action), Plaintiff has properly alleged that Chernov “had no reasonable ground for believing [the representations] to be true[,]” and therefore has alleged a cause of action for negligent misrepresentation. (Code Civ. Proc., § 430.10, subd. (e); Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173 [setting forth elements of fraud, which includes element of knowledge of falsity]; Borman v. Brown (2021) 59 Cal.App.5th 1048, 1060 [setting forth elements of claim for negligent misrepresentation]; Pavicich v. Santucci (2000) 85 Cal.App.4th 382, 389 [“it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory”] [italics added] [internal quotations omitted].) Although both the court and Plaintiff recognize this lack of clarity, Chernov did not request that the court sustain the demurrer to this cause of action on the ground of uncertainty. (Opp., p. 12:25-27.)

The court sustains Chernov’s demurrer to the sixth cause of action for conversion because it does not state facts sufficient to constitute a cause of action since Plaintiff has not alleged facts showing that she is entitled to “a specific sum capable of identification . . . .” (Code Civ. Proc., § 430.10, subd. (e); PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLC (2007) 150 Cal.App.4th 384, 396; FAC ¶ 91.)

The court overrules Chernov’s demurrer to the seventh cause of action for unjust enrichment because it states facts sufficient to constitute a cause of action since unjust enrichment is a valid theory pursuant to which Plaintiff may request relief. (Code Civ. Proc., § 430.10, subd. (e); Lyles v. Sangadeo-Patel (2014) 225 Cal.App.4th 759, 769 [“‘The elements for a claim of unjust enrichment are “receipt of a benefit and unjust retention of the benefit at the expense of another”’”].)

The court overrules Chernov’s demurrer to the eighth cause of action for money had and received because it states facts sufficient to constitute a cause of action since Plaintiff has alleged facts showing that (1) Chernov is indebted to Plaintiff, (2) for the money that he received for the use and benefit of Plaintiff. (Code Civ. Proc., § 430.10, subd. (e); Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 230 [“To prevail on a common count for money had and received, the plaintiff must prove that the defendant is indebted to the plaintiff for money the defendant received for the use and benefit of the plaintiff”].)

The court overrules Chernov’s demurrer to the ninth cause of action for civil violation of Penal Code section 496 because it states facts sufficient to constitute a cause of action since Plaintiff has alleged that (1) Chernov received property belonging to Plaintiff (i.e., the commissions, profits, and other revenues from the sale of the property), (2) knowing it belonged to Plaintiff and by withholding those funds from Plaintiff in a manner constituting theft, and (3) Chernov had the requisite criminal intent by carrying out by a “plan” to secretly remove Plaintiff from the partnership and withhold all monies owed. (Code Civ. Proc., § 430.10, subd. (e); FAC ¶¶ 106-107, 22; Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 361-362.)

The court overrules Valleyheart’s demurrer to the 10th cause of action for intentional interference with prospective economic advantage because it states facts sufficient to constitute a cause of action since Plaintiff has alleged (1) the existence of an economic relationship between Plaintiff and Chernov, who is a third-party from the perspective of Valleyheart; (2) Valleyheart’s knowledge of the relationship between Plaintiff and Chernov, since Chernov owned and controlled Valleyheart; (3) that Valleyheart performed intentional acts designed to disrupt this relationship when it received embezzled funds from Chernov; (4) the relationship was disrupted; and (5) Plaintiff was harmed and damaged in the form of lost profits. (Code Civ. Proc., § 430.10, subd. (e); FAC ¶¶ 112, 27, 33-36; O&C Creditors Group, LLC v. Stephens & Stephens XII, LLC (2019) 42 Cal.App.5th 546, 568, n. 7.)

The court overrules defendant Dennis Chernov’s demurrer to plaintiff Stefanie Pollack’s first through fifth, eighth, and ninth causes of action.

The court sustains defendant Dennis Chernov’s demurrer to plaintiff Stefanie Pollack’s sixth cause of action for conversion with leave to amend.

The court overrules defendant 12227 Valleyheart, LLC’s demurrer to plaintiff Stefanie Pollack’s First Amended Complaint.

The court grants plaintiff Stefanie Pollack 20 days leave to file a Second Amended Complaint that cures the defects in the sixth cause of action as set forth above.

[1] Chernov also argues that Plaintiff cannot recover compensation from codefendant Valleyheart. However, Chernov does not have the standing to challenge Plaintiff’s claims as against another defendant.

stefanie pollack ; Plaintiff, vs. dennis chernov , et al.; Defendants.	Case No.:	22STCV12850

	Hearing Date:	September 5, 2023

	Time:	10:00 a.m.

	[Tentative] Order RE: (1) defendant’s demurrer to first amended complaint (2) defendant’s demurrer to first amended complaint