Judge Ronald F. Frank, Case 22TRCP00389 2023-04-07 Tentative Ruling

Judge: Ronald F. Frank, Case: 22TRCP00389, Date: 2023-04-07 Tentative Ruling

Case Number: 22TRCP00389 Hearing Date: April 7, 2023 Dept: 8

Tentative Ruling

HEARING DATE: April 7, 2023¿

CASE NUMBER: 22TRCP00389

CASE NAME: Alan Elias v. West Coast Laboratories, Inc.

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MOVING PARTY: Respondent, West Coast Laboratories, Inc.

RESPONDING PARTY: Petitioner, Alan Elias

MOTION:¿ (1) Respondent’s Demurrer to Plaintiff’s Writ of Mandate

(2) Respondent’s Motion to Strike Plaintiff’s

(3) Respondent’s Request for Judicial Notice

Tentative Rulings: (1) Respondent’s Demurrer to Plaintiff’s Writ of Mandate is OVERRULED.

(2) The Motion to Strike is GRANTED in part as to two of the identified allegations, and DENIED as to the rest.

(3) The RFJN is DENIED

I. BACKGROUND¿

A. Factual¿

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On October 21, 2022, Petitioner, Alan Elias (“Petitioner”), filed a Writ of Mandate against Respondent, West Coast Laboratories, Inc. (“Respondent” or “WCL”.) On February 14, 2023, Petitioner filed an Amended Writ of Mandate. (“AWOM”.) Petitioner requested in his AWOM to allow his accountant, Ashraf Attalah, to inspect the “accounting books, records, and minutes of proceedings of the shareholder and the board” as allowed under California Corporations Code section 1601. Specifically, Plaintiff requested:

a. All bank statements from 2019 to present;

b. All credit card statements from 2019 to present;

c. All inventory transitions (in and out) from 2019 to present;

d. All bills of lading and/or packing lists from 2019 to present;

e. All invoices issued from 2019 to present;

f. A list of customers and vendors from 2019 to present;

g. Access to details of accounts payable and accounts receivable from 2019 to present;

h. Trial balance from 2019 to present;

i. Profit and loss statements/Balance Sheets from 2019 to present;

j. Sales tax submitted to the State Board of Equalization from 2019 to present; and

k. From DE9, DE9C, and form 941forpayrolls from 2019 to present.

(AWOM, ¶ 25.)

Petitioner notes that he has been a 25% shareholder in WCL since 2004. (AWOM, ¶ 19.) Petitioner contends that over the years, WCL has failed to make a proper distribution to him on the basis of “not being profitable.” However, Petitioner claims he does not believe this is true as he has evidence that WCL receives millions of dollars in revenue every year. (AWOM, ¶ 20.) Petitioner also claims that upon conducting an initial investigation, he also learned that the persons running WCL are taking “bloated” salaries, misappropriating funds, and mismanaging the company to a point where the Department of Justice and FDA have issued complaints citing “serious issues” with WCL’s practices. (AWOM, ¶ 21.)

Petitioner further notes that on June 20, 2022, Petitioner’s counsel sent a Demand for Inspection to WCL in compliance with California Corporations Code section 1601. (AWOM, ¶ 23.) However, Petitioner contends that despite the lawful demand, WCL still refuses to disclose relevant records to Petitioner Elias from determining the value of his shares, or why it has not been profitable over the years. (AWOM, ¶ 25.) Petitioner notes that although some documents have been produced by WCL, they are only surface level and do not provide the required information to evaluate the beneficial interest held by Petitioner. (AWOM, ¶ 26.) As such, Petitioner has requested an order from this Court requiring WCL to make its records available pursuant to California Corporations Code section 1601. (AWOM, ¶ 27.)

Respondent now demurs to the AWOM and has also filed a Motion to Strike.

B. Procedural

On March 6, 2023, Respondent filed a demurrer and Motion to Strike Petitioner’s Amended Writ of Mandate. On March 24, 2023, Petitioner filed an opposition brief. On March 30, 2023, Respondent filed a reply brief.

¿II. GROUNDS FOR MOTIONS

Respondent demurs to the AWOM because it claims that the AWOM fails to state sufficient facts or evidence to support the relief requested. Further, Respondent notes that Petitioner did not provide a record to be reviewed by the Court in order to determine whether or not a Writ is the appropriate remedy, or even if there is a failure to be remedied.

Respondent also demurs to the AWOM to the substance of the petition because it argues that the Court cannot grant Petitioner’s requests for (b), (c), (d), (e), (f), (g), (j), and (k) because it argues that the governing statute and caselaw do not provide for such requests.

Respondent has filed a Motion to Strike requesting that the following portions of the AWOM be stricken:

1. The following language at page 2, para. 4, lines 12 through 15 of the Petition: “Preliminarily, it appears that the persons running WCL have been acting negligently while simultaneously using the company as their own personal piggy bank. For example, WCL is being run so haphazardly that it has received complaints from both the Food and Drug Administration along with the Department of Justice citing "serious issues.''”

2. The following language at page 2, para. 6, lines 20 through 21 of the Petition: “In response, WCL initially refused to produce any records.”

3. The following language at page 2, para. 7, line 23 of the Petition: “necessary and detailed”

4. The following language at page 3, para. 8, lines 1 and 2 of the Petition: “WCL has also refused the demand without providing a reasonable or warranted excuse.”

5. The following language at page 5, para. 20, line 13 of the Petition: “proper.”

6. The following language at page 5, para. 21, lines 16 through 19 of the Petition: “Further, and upon conducting an initial investigation, Elias also learned that the persons running WCL have been acting negligently while simultaneously using the company as their own personal piggy bank. For example, WCL is being run so haphazardly that it has received complaints from both the Food and Drug Administration along with the Department of Justice citing "serious issues.''”

7. The following language at page 6, para. 25, lines 14 through 16 of the Petition: “Despite the lawful demand, WCL still refuses to disclose relevant records to Petitioner Elias from determining the value of his shares, or why it has not been profitable over the years.”

8. The following language at page 6, para. 26, lines 19 through 21 of the Petition: “Respondent has failed to elaborate on why the documents are not available to the Petitioner. It is clear Respondent is hiding something and not complying with Corporations Code section 1601;”

9. The following language at page 7, para. 28, lines 8 through 14 of the Petition: “b. All credit card statements; c. All inventory transitions (in and out); d. All bills of lading and/or packing lists; e. All invoices issued; f. A list of customers and vendors; g. Access to details of accounts payable and accounts receivable;”

10. The following language at page 7, para. 28, lines 17 through 19 of the Petition: “j. Sales tax submitted to the State Board of Equalization; and k. From DE9, DE9C, and form 941 for payrolls from 2019 to present.”

Respondent asserts that it bases its Motion to Strike Portions of the AWOM on the grounds that Petitioner makes knowingly irrelevant, false, and improper statements.

III. REQUEST FOR JUDICIAL NOTICE

Respondents request this Court take judicial notice of the following documents:

A copy of the WCL’s letter dated June 27, 2022, in response to Petitioner’s demand letter dated June 20, 2022, and the email thread between Petitioner’s and Respondent’s attorneys negotiating additional terms of the Demand. A true and correct copy of these documents is attached to the Demurring Papers as Exhibit “A”.

The Court DENIES Respondent’s request for judicial notice of the above. The June 27, 2022 letter and the email threads are not the type of matter of which the Court is required to judicially notice under Evidence Code §451, nor are they something that the Court in its discretion could or should judicially notice under Evidence Code §452. Instead, they are evidence, exhibits, and other material outside the four corners of the AWOM. This is not a summary judgment motion or a motion for preliminary injunction or a motion to expunger a lis pendens where the Court is authorized by statute to consider evidence outside the four corners of the operative pleading in making a ruling.

IV. ANALYSIS ¿

A. Demurrer

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)¿

A pleading is uncertain if it is ambiguous or unintelligible. (Code Civ. Proc., § 430.10, subd. (f).) A demurrer for uncertainty may lie if the failure to label the parties and claims renders the complaint so confusing defendant cannot tell what he or she is supposed to respond to.¿ (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.) However, “[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.)¿

Here, Respondent’s demurrer argues that in order for the Court to grant a petition for writ of mandate, the petitioner must have actually made a demand that the [lower tribunal or corporation] perform the duty, and that the [lower tribunal or corporation] must have actually refused to perform the duty. (citing Neal v. State (1960) 55 Cal.2d 11, overruled on other grounds in People v. Correa (2012) 54 Cal. 4th 331; y. (Meskell v. Culver City Unified School Dist. (1970) 12 Cal. App. 3d 815, 823). Respondent asserts that here, Petitioner only alleges: “Despite the lawful demand, WCL still refuses to disclose relevant records to Petitioner Elias from determining the value of his shares, or why it has not been profitable over the years.” (AWOM, ¶ 24.) Respondents assert that this is not a statement that Petitioner has refused to comply with Corporations Code section 1601. Instead, Respondent argues that this is a statement that Petitioner is unhappy with his lack of understanding. Respondent asserts that nothing in the AWOM alleges that WCL has failed to provide the specific types of documents required to be provided for inspection upon request of a shareholder.

Next, Respondent also argues that Petitioner requests an unavailable remedy, because the only documents that must be provided to a shareholder upon request are those stated in Corporations Code section 1601. Respondent notes that those are: The accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation. (Corp. Code § 1601.) As such, Respondent argues that Petitioner made a critical error by requesting this Court to allow his accountant to inspect far beyond “the accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation” (Corp. Code, § 1601.)

Additionally, Petitioner asserts that the right to inspect extends only to records “reasonably related” to the shareholder’s proper purpose for inspection. (Corp. Code, §1601.) Respondent contends that Petitioner makes multiple baseless claims that he knows are not true, based on previous record inspections which most recently occurred in November 2021, including “person running WCL are taking bloated salaries, misappropriating funds, and mismanaging the company” alongside the wildly inaccurate allegation that “the Department of Justice along with the Food and Drug Administration have issued complaints citing "serious issues" with WCL's practices.” Respondent argues that if Petitioner is sincere in wanting to understand the finances of the company, (a), (h), and (i), are more than sufficient without providing confidential trade secret information such as customers, vendors, and inventory, nor violate the privacy of non-executives’ pay under the CCPA. (Cal. Civ. Code §§ 3426-3426.11; Cal. Civ. Code § 1798.145.)

In opposition, Petitioner argues that the AWOM meets the requirements under California Corporations Code section 1601. First, Petitioner notes that he is a shareholder of the corporation; Second, Petitioner asserts he has made a proper demand to inspect and copy the records; Third, the corporation has refused to allow the petitioner to inspect and copy the records; Fourth, Petitioner argues that the records sought to be inspected are necessary and essential to the proper exercise of the Petitioner’s shareholder rights; Fifth, Petitioner asserts he has no other adequate remedy at law. Based on this, Petitioner has showed sufficient evidence to allege the cause of action regarding California Corporations Code section 1601.

Notably, Petitioner argues that the AWOM alleges that the Corporation has refused to disclose the necessary documents. Petitioner denies Respondent’s assertion that the AWOM fails to allege a refusal to comply with Section 1601’s requirements, but rather Petitioner is merely “unhappy with his lack of understanding.” Petitioner correctly notes that this assertion is more a factual argument that is improper on demurrer. Petitioner also argues that the documents sought are essential to Petitioner’s rights as a Shareholder. Petitioner notes that he is seeking to understand the value of his shares. As such, he argues that all of the documents listed are necessary for him to do so.

To the Court, the Demurrer protests too much. Rather than attacking the sufficiency of the allegations, instead the demurrer seeks for the Court to assess the truth or accuracy of the allegations which is improper on a demurrer. A Demurrer challenges the pleading on its face, and accepts the facts as alleged as true. Paragraphs 5-8 of the AWOM allege that the 6/20/22 letter sought documents required from the corporation under Section 1601, that some documents were produced but, as Petitioner alleges, not all of the documents requested per Section 1601 were provided. The Court has no evidence to consider at this point whether the records sought exist, whether the records produced were sufficient, whether the Respondent substantially complied with its statutory obligations, or any other adjudication. It is sufficient that the AWOM asserts that less than all of the allegedly required and demanded documents were produced. The Court believes that Petitioner has adequately alleged all the required elements for a corporate writ of mandate to procced past the pleading stage. As such, this Court overrules the demurrer. Whether those allegations can be proven is an issue for another, future proceeding.

B. Motion to Strike

Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof. (Code Civ. Proc., § 435, subd. (b)(1).) The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436, subd. (a); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].) The court may also strike all or any part of any pleading not drawn or filed in conformity with California law, a court rule, or an order of the court. (Code Civ. Proc., § 436, subd. (b).) An immaterial or irrelevant allegation is one that is not essential to the statement of a claim or defense; is neither pertinent to nor supported by an otherwise sufficient claim or defense; or a demand for judgment requesting relief not supported by the allegations of the complaint. (Code Civ. Proc., § 431.10, subd. (b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Code Civ. Proc., § 437.)¿¿

Respondent argues that here, Petitioner lacks merit, evidence, and law. Respondent argues that the AWOM fails in its request for an order forcing Respondent to turn over corporate records that no statute and caselaw support. Respondent contends the AWOM contains 10 specified allegations that are irrelevant to Petitioner’s claim, or are “knowingly false,” which thus must stricken. Respondent points to the allegation in the AWOM noting “[p]reliminarily, it appears that the persons running WCL have been acting negligently while simultaneously using the company as their own personal piggy bank. For example, WCL is being run so haphazardly that it has received complaints from both the Food and Drug Administration along with the Department of Justice citing "serious issues.''” Respondent argues that this statement immaterially alleges negligence without any supporting facts, only alleges conclusions and further falsely mentions “minor reporting issue” quickly resolved with the Food and Drug Administration. As such, Respondent argues that the language at page 2, para. 4, lines 12 through 15 and at page 5, para. 21, lines 16 through 19 of the Petition must be stricken.

While these allegations provide some context as to the reasons for Petitioner to be seeking the documents he does, the Court concurs with Respondent that these allegations are inflammatory, are not relevant to a duty under the Corporations Code to allow for inspection of records, and are largely superfluous. But the Court cannot assess at the motion to strike stage whether the allegations are false or knowing false, because the Court does not weigh evidence at the pleading stage. For example, the Court has no evidence as to what was or was not before the FDA, so the Court cannot assess whether that allegation is false or knowingly false or entirely accurate. The Court thus GRANTS the motion to strike per CCP §435(a)the allegations at page 2 lines 12-15 and page 5 lines 16-19, but makes not finding or ruling as to whether those allegations are untrue. The remainder of the motion to strike is DENIED. At this stage of the case, without any evidence before it, the Court cannot make a finding as to whether banking or credit card statements, for example, are or are not part of the accounting books and records of the board or any committee of the board. As to the other categories of documents being sought, the Court will rule as to whether they are or are not required by the Corporations Code once it has evidence bearing on such a decision. For now, it is sufficient that Petition has alleged that they are.