Judge Stephanie M. Bowick, Case Number: 24STCV04823, Date: 2024-11-06 Tentative Ruling

Judge: Stephanie M. Bowick, Case: 24STCV04823, Date: 2024-11-06 Tentative Ruling

(1) Plaintiff Blue Nile Management’s Demurrer to First Amended Complaint is SUSTAINED in its entirety. The Court GRANTS LEAVE TO AMEND as to causes of action two (2) and three (3) but not as to causes of action four (4) and five (5). Plaintiff is granted 20 days leave to amend.

Counsel for Defendant THC Altmore to lodge a proposed order in accordance with these rulings.

This action alleges breach of written guarantee arising from the alleged breach of a written and commercial lease between Plaintiff and Lessor Blue Nile Management, LLC (herein “Plaintiff” or “Lessor” or “Blue Nile”) and non-party THC DESIGN, INC. and 1346 LA, LLC, as Lessee (collectively “Tenant”) on April 16, 2021. Lessor and Lessee entered into the subject lease, Standard Industrial/Commercial Multi-Tenant Lease—Gross (the “Lease”) creating a tenancy over said premises commonly referred to as 2317 S Santa Fe Ave., Los Angeles 90058 (herein “Premises”). (Compl., ¶ 18, Ex. A.) Plaintiff further alleges that on April 16, 2021, Defendant Ryan Jennemann signed a written Guaranty of Lease (“Guaranty”) in the County of Los Angeles, California, to induce Plaintiff to extend credit and personally guarantee the indebtedness of Tenant relating to the amounts due to Plaintiff under the Lease. (Compl., ¶ 19, Ex. B.)

On February 27, 2024, Plaintiff / Lessor Blue Nile, filed the original complaint. Then, on June 26, 2024, Plaintiff filed the underlying First Amended Complaint (“FAC”) against Defendant Ryan Jennemann (“Jennemann”), as the Guarantor, and naming Defendant THCD Altmore, LLC (“Altmore”) as Tenant’s “alter ego,” alleging that some time in August of 2023, Tenant breached the Lease by failing to pay in full the monies due. (Compl., ¶ 20.) Accordingly, Plaintiff alleges that as of February 1, 2024, Tenant owes Plaintiff no less than $416,765.36 for rent and other charges. The FAC is now the operative complaint and alleges five causes of action:

Defendant Altmore demurs to the second, third, fourth, and fifth causes of action of the FAC on the grounds they are uncertain and fail to state facts sufficient to constitute a cause of action. Defendant further contends that Plaintiff has failed to plead facts supporting its alter ego claims because Altmore and Tenant did not share any ownership interest and Plaintiff’s allegations are actually adverse to one another. Defendant Altmore does not demur to the first cause of action, as the first cause of action is only alleged against Defendant Jennemann.

Defense Counsel Kevin Khachatryan sets forth in his declaration (“Khachatryan Decl.”) that on September 3, 2024, he convened a meet and confer pursuant to Code Civ. Proc, § 430.1(a) with Plaintiff’s counsel of record. (Khachatryan Decl., ¶ 7.) Defense Counsel states that despite thoroughly engaging in meet and confer efforts and discussing each issue raised in the instant demurrer with good faith, counsels were unable to reach agreement on the issues herein. (Id. at ¶¶ 8-9.) Defendant Altmore has complied with the meet and confer requirements. (Code Civ. Proc., § 430.41(a); Code Civ. Proc., § 435.5(a).)

Defendant Altmore demurs to each cause of action on the grounds they are uncertain. Plaintiff alleges that Altmore provided Tenant (THC Design) with a several million-dollar loan but then refused to provide Tenant with access to a significant portion of the Loan thereby putting Tenant’s business as THC Design in jeopardy and causing it to breach its commercial Lease with Plaintiff Blue Nile. (Dem., pg. 2.)

A demurrer to a pleading lies where the pleading is uncertain. (Code Civ. Proc. §430.10(f).) “Uncertain” includes ambiguous and unintelligible. (Id.) “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; see also Code Civ. Proc. §430.10(e).) Moreover, “[a] special demurrer should be overruled where the allegations of the complaint are sufficiently clear to apprise the defendant of the issues which he is to meet.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 643.)

Here, Plaintiff argues the FAC is not so uncertain that Defendant Altmore cannot reasonably respond to it. On the other hand, Defendant contends Altmore is left in a position to wonder what it is being accused of and why it is a named party in this lawsuit, considering Plaintiff’s attempt to invoke the alter ego claim is based on several contradictory claims. Defendant further asserts that in one argument, Plaintiff tries to establish a unity of interest by alleging that “Tenant’s assets, and monies were treated interchangeably with [Altmore],” “significant assets of Tenant are now within the control of [Altmore],” and “the funds and assets of Tenant were diverted or transferred to [Altmore] or for the benefit of [Altmore.] (FAC, ¶¶ 27, subd.(c), (j), (k).) Yet, in another argument, Plaintiff alleges that Tenant and Altmore were adverse given Altmore “made a purported loan” to Tenant and Tenant went “into default of purported obligations owed to [Altmore][.]” (FAC, ¶¶ 8, 27, subd. (s).) Thus, Defendant Altmore argues that Plaintiff is claiming Altmore was the alter ego of Tenant with a unity of interest while also conceding that Altmore was Tenant’s lender and that Tenant defaulted on Altmore’s loan. In effect, Tenant’s interests were adverse to Altmore.

Defendant Altmore continues by arguing the following: (a) Plaintiff’s alter ego allegations constitute conclusory statements devoid of factual support; (b) Plaintiff lacks standing against Defendant Altmore; (c) Plaintiff was not even a party to the Loan Agreement between Altmore and Non-party lessees; and similarly, (d) Defendant Altmore was not even named in the Lease Agreement and Guaranty which are collectively twenty-three (23) pages and fail to make a single reference to Altmore or even condition the Lease on Altmore lending Tenant any funds. (FAC, ¶¶ 18-19, Exs. A-B.)

The Court finds the FAC is uncertain as to both establishing its alter ego claims and as to establishing standing with respect to Defendant Altmore which will be discussed further below. Thus, with respect as to uncertainty as to each of the causes of action, the demurrer is ultimately SUSTAINED.

“ ‘The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff's interests.... In certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation[.]’ ” (Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 510, 121 Cal.Rptr.3d 118 (Greenspan).) Under both California and Delaware law, the alter ego doctrine extends to LLCs (see Corp. Code, § 17703.04, subd. (b); NetJets Aviation, Inc. v. LHC Communications, LLC (2d Cir. 2008) 537 F.3d 168, 178 (NetJets)), and generally requires the proponent to demonstrate two elements: (1) a unity of interest and ownership such that the separate personalities of the corporation and the individual do not exist; and (2) an inequitable result if the corporate identity is not disregarded. (See Greenspan, at p. 511, 121 Cal.Rptr.3d 118; NetJets, at pp. 177–178; emphasis added.)

“ ‘The standards for the application of alter ego principles are high, and the imposition of [alter ego] liability ... is to be exercised reluctantly and cautiously.’” Still, ‘ [t]he greatest liberality is to be encouraged ’ in allowing judgments to be amended to add the ‘real defendant,’ or alter ego of the original judgment debtor, ‘ in order to see that justice is done.’ ” (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 281, 199 Cal.Rptr.3d 226 (Highland Springs).) JPV I L.P. v. Koetting, 88 Cal. App. 5th 172, 189, 304 Cal. Rptr. 3d 550, 564 (2023), review denied (May 17, 2023).)

“Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.” (Roman Catholic Archbishop v. Superior Court, supra, 15 Cal.App.3d at pp. 406, 411, 93 Cal.Rptr. 338; Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at pp. 838–839, 26 Cal.Rptr. 806.) Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. (See Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1285, 31 Cal.Rptr.2d 433; Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at pp. 838–839, 26 Cal.Rptr. 806; Alberto v. Diversified Group, Inc., supra, 55 F.3d at p. 205.) No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied. (Talbot v. Fresno–Pacific Corp. (1960) 181 Cal.App.2d 425, 432, 5 Cal.Rptr. 361.) Alter ego is an extreme remedy, sparingly used. (Calvert, supra, 875 F.Supp. at p. 678.) (Sonora Diamond Corp. v. Superior Ct., 83 Cal. App. 4th 523, 538–39, 99 Cal. Rptr. 2d 824, 836 (2000).)

The Court notes that Plaintiff’s causes of action against Defendant Altmore rely on Plaintiff’s allegations that the alter ego doctrine applies to invoke Defendant Altmore such that Defendant Altmore and Tenant are essentially the same legal entity. Defendant Altmore argues that Plaintiff has not pled sufficient facts to invoke alter ego doctrine because Plaintiff relies on general assertions and thus, fails to allege sufficient facts to establish that (1) there is a unity of interest between Altmore and Tenant; and (2) injustice will occur absent imposition of the extreme remedy of alter ego. (Mot., pg. 5.)

Defendant Altmore provides that the Court of Appeal has delineated eighteen factors to consider when evaluating whether two parties are alter egos of one another (Mot., pg. 5.) and that Plaintiff’s FAC fails to address thirteen of the eighteen relevant alter ego factors. (Id., pg. 6.) Moreover, Defendant argues that the five factors Plaintiff attempts to address are inadequate because they each exist in any lender-borrow relationship and are therefore not specific characteristics of an alter ego relationship. (Id., pg. 7.) Defendant concludes that Plaintiff attempts to establish unity of interest between a lender and borrow premises on the lender’s post-default actions against the borrower, which purportedly affected the borrower’s commitments to its landlord. (Id., pg. 8.) Thus, expanding the alter ego doctrine to such a relationship would set a dangerous precedent because then virtually every bank or corporation that loaned money to a borrower would be potentially on the hook for borrower’s commitments regardless of privity. (Id.) Moreover, Defendant maintains Plaintiff’s allegations are conclusory.

Defendant states Plaintiff only addresses Factors 1, 2, 13, 17, 18. Factor 1 concerns whether there was comingling of funds between the two entities. Defendant states that Plaintiff’s FAC alleges the following with respect to Factor 1:

“Tenant’s assets, and monies were treated interchangeably with [Altmore] as revealed by the exorbitant and usurious interest rates to [THC Design][,]” “significant assets of Tenant are now within the control of [Altmore][,]” and “the funds and assets of Tenant were diverted or transferred to [Altmore] or for the benefit of [Altmore] and DOES 1-10, inclusive, or other [Altmore] controlled entities[.]” (FAC at ¶¶27, subd. (c), (j), (k).)

Defendant reasons that these allegations are merely general assertions and more importantly, contradicted by Plaintiff’s own pleadings which specifically allege that Altmore “made a purported loan” to Tenant and Tenant went “into default of purported obligations owed to [Altmore][.]” (FAC, at ¶¶8, 27, subd. (s).) (Mot., pg. 7.)

Factor 2 is whether an individual treated the assets of the corporation as his own. Defendant states that Plaintiff again attempts to rely on conclusory statements that “Tenant defaulted on Altmore’s loan” while Defendant finds such circumstances are drastically distinguished from a situation wherein a corporation interchangeably uses another corporation’s assets without any special circumstance, including attempting to recover assets from a borrower that defaulted on a loan. (Mot., pg. 7.)

Factor 13 is whether the corporation was being used as a mere shell. Altmore states that Plaintiff tries to address this factor by alleging that “[THC Design] has been and now is a mere shell and naked framework which [Altmore] used as a conduit for the conduct of [Altmore’s] personal business, property and affairs.” (FAC, ¶ 27, subd. (i). Critically, Plaintiff fails to provide details as to how THC Design (Tenant) is a shell and framework used to Altmore’s business and property affairs. Moreover, Plaintiff does not allege that Altmore has any ownership interest with Tenant THC Design. (Mot., pg. 7.)

Factor 17 is whether assets were/are being diverted from a corporation or stockholder to another person or entity to the detriment of creditors. Factor 18 is whether the formation and use of a corporation is used to transfer to it the existing liability of another person or entity. Defendant argues Plaintiff attempts to address these factors by alleging that “[Altmore] disregarded corporate and legal formalities of Tenant, manipulated assets and liabilities between Tenant and [Altmore] to concentrate the assets and interest in [Altmore] and the liabilities in Tenant.” (FAC, ¶¶8, 27, subd. (n). (Mot., pg. 8.)

On Opposition, Plaintiff argues that the most familiar application of the alter ego doctrine is to disregard form over substance to hold those in a single enterprise accountable to avoid injustice. (Opp., pgs. 3-4.) Moreover, Plaintiff contends that the FAC alleges facts to support alter ego liability by alleging that (a) Defendant Altmore was an equitable owner; (b) Tenant was a mere shell, instrument, and/or conduit used in pursuit of Altmore’s own business objectives; and (c) that Tenant and THCD are operated as one integrated entity. (FAC, ¶¶ 14- 16, 27 and 28.) [1] Plaintiff asserts that “[a] plaintiff need only allege ultimate rather than evidentiary facts to support a plaintiff’s alter ego allegations. Dore v. City of Los Angeles (2007) 42 Cal.4th 531, 550 [Less particularity of pleading is required where the defendant may be assumed to possess knowledge of the facts at least equal, or superior, to that of the plaintiff.]. (Opp., pg. 4.) With respect to Defendant’s argument concerning the lender-borrow relationship, Plaintiff argues that the FAC does allege a de facto ownership in Tenant by Altmore because paragraphs 14 and 15 of the FAC allege as follows:

“Any loan must be treated as equity because the borrower THC DESIGN, INC...[was] undercapitalized at the time the loan was made and the nominal loan made by THCD to THC DESIGN, INC...was in reality a de facto contribution to capital because of the (a) inadequacy of capitalization of THC DESIGN, INC.., (b) the terms of the loan agreement, (c) the relationship of the loan debt to other creditors,(d) THCD was unlicensed as a lender, (e) the loan was given under conditions where repayment was highly speculative, and was lacking in realistic creditor safeguards.. [and that] THC DESIGN, INC. all times ...mentioned in this Complaint, ... was dominated, influenced, and controlled for THCD, and THC DESIGN, INC. was a mere conduit for the business, property, and affairs of THCD... by among other things, including the overt control over which of Tenants’ creditors would be paid, knowing that certain of those creditors, such as Plaintiff, would continue to extend benefits to Tenants with no chance of being repaid...by, among other things, including the overt control over which of Tenants’ creditors would be paid, knowing that certain of those creditors, such as Plaintiff, would continue to extend benefits to Tenants with no chance of being repaid...by, among other things, including the overt control over which of Tenants’ creditors would be paid, knowing that certain of those creditors, such as Plaintiff, would continue to extend benefits to Tenants with no chance of being repaid... THCD locked out the listed owners of THC DESIGN, INC. in or about the fourth quarter of 2023 from all financial and accounting records of THC DESIGN, INC... THCD locked out the listed owners of THC DESIGN, INC. in or about the fourth quarter of 2023 from all financial and accounting records of THC DESIGN, INC.”

Thus, Plaintiff argues that Defendant Altmore is attempting to improperly disguise or label an “equity contribution” in Tenant as a loan. (Opp., pg. 5.) Considering such allegations and that ownership can take two forms (“de jure” or “de facto”), Plaintiff argues it should be allowed to prove its case that Altmore’s loan must be treated as equity and “was in reality a de facto contribution to capital” of the Tenant.

Here, the Court finds that Plaintiff’s allegations are indeed conclusory in nature with respect to pleading sufficient facts establishing Tenant THC and Defendant Altmore had a unity of interest. Defendant provides that “[g]eneral assertions by way of conclusion are deemed insufficient to state a claim for relief.” (See Metzenbaum v. Metzenbaum (1948) 86 Cal.App.2d 750, 754.) “Conclusory allegations will not withstand demurrer.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal. 4^th 797, 808 [Citation].) (Mot., pg. 3.) Under Code Civ. Proc. §430.10 (f), a party may object by demurrer to the pleading where it is “uncertain,” meaning ambiguous or unintelligible. A pleading must allege facts, not conclusions, and material facts must be alleged directly. (Ankeny v. Lockheed Missiles and Space Company (1979) 88 Cal.App.3d 531, 537; Code Civ. Proc., §430.10, subd. (f).) Further, “the essential facts upon which a determination of the controversy depends should be stated with clearness and precision so that nothing is left to surmise. []” (Ankeny, 88 Cal.App.3d at 537.) (Mot., pg. 4.)

In this case, the Court finds Plaintiff’s arguments contradictory in asserting Defendant Altmore had both a unity of interest with Tenant while at the same time, acting adversely to its interests in its position as a lender to Tenant as the borrower. Considering Tenant defaulted and has been adversely affected by the terms and/or enforcement of the subject Loan, Plaintiff cannot merely conclude that a loan equates to equitable ownership without alleging specific facts as to how in this case. Moreover, the Court finds Plaintiff’s assertion that “there was a ‘Handshake Agreement’ to grant equity in Tenant, as shown in the table and Schedule 5.19(B) to the Loan Agreement (Exhibit B to the Declaration of Maurice Wainer)” problematic given there is an express Loan Agreement which does not evidence a “Handshake Agreement” or such equity contribution. (Wainer Decl., Ex. B.) (Opp., pg. 11.)

The Court agrees with Defendant’s arguments for Factors 2, 13, 17, and 18. Although Plaintiff provides legal authority suggesting that Plaintiff need not plead facts with such particularity if the evidence of such facts are in Defendant’s custody, Plaintiff does not establish this applies in the instant case. The Court indeed notes that Plaintiff provides legal authority suggesting that evidentiary facts are not required in the instant case and that Plaintiff need only plead the ultimate facts. However, the Court finds Plaintiff does not establish its pleadings constitute “ultimate facts” here either. Thus, Plaintiff has failed to plead sufficient and essential facts establishing a unity of ownership such that the determination of this controversy is stated with clearness and precision so that there is nothing left to surmise.

Defendant provides that “a creditor remaining unsatisfied if the corporate veil is not pierced is insufficient to allege that injustice will occur to Plaintiff.” (Assoc. Vendors, Inc., supra, 210 Cal.App.2d at p. 842.) (Mot., pg. 9.) Defendant argues that Plaintiff’s allegations with respect to the injustice element focus on a concern that Plaintiff’s damages would remain unsatifised if the Court does not impose the remedy of alter ego liability. (Mot., pg. 9.) For example, Plaintiff alleges having “no chance of being repaid.” (FAC at ¶27, subd. (f); see also subd. (l),(m), (q).) Similarly, Plaintiff alleges “adherence to the fiction of the separate corporate existence of Tenant would . . . sanction a fraud and promote injustice in that Plaintiff would be unable to realize upon any judgment in its favor[.]” (Id. at ¶28; Mot., pg. 9.)

On Opposition, Plaintiff does not specifically address Defendant’s argument that a concern of Plaintiff’s damages remaining unsatisfied—if the Court does not impose alter ego liability—is an insufficient concern to allege that injustice will occur to Plaintiff. Instead, Plaintiff’s Opposition ends the discussion of alter ego by concluding in its analysis for element one and not element two. Plaintiff maintains it should be allowed to prove its case that Tenant’s loan “must be treated as equity” and “was in reality a de facto contribution to capital” of the Tenant. (Opp., pg. 6.)

The Court agrees with Defendant that Plaintiff’s concern that damages will remain unsatisfied if the Court does not impose alter ego liability is not sufficient to allege facts to establish the second element of injustice. As such, the Court finds Plaintiff does not plead sufficient and particular facts to establish the second element of the alter ego doctrine here. Plaintiff fails to plead facts with the requisite certainty needed to allege alter ego liability such that Defendant Altmore is apprised of the issues it needs to properly meet and defend itself.

Thus, Defendant’s demurrer to Plaintiff’s allegations of alter ego liability is SUSTAINED.

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, with a view to substantial justice between the parties. (Code Civ. Proc, § 452; Stevens v. Superior Court (1999) 75 Cal.App.4th 594, 601.) 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.) “We treat the demurrer as admitting all material facts properly pleaded but not contentions, deductions or conclusions of fact or law. We accept the factual allegations of the complaint as true and also consider matters which may be judicially noticed.” (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, 147 Cal.App.4th at 747.) “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 District (2012) 53 Cal.4th 861, 872.)

Despite the Court finding Plaintiff’s pleadings uncertain in alleging alter ego liability against Defendant Altmore, the Court will nevertheless further analyze Defendant’s additional arguments on the merits as to each of the individual causes of action.

The Unfair Competition Law (“UCL”) includes any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising. (Bus. & Prof. Code § 17200.) The UCL’s coverage embraces “anything that can properly be called a business practice and that at the same time is forbidden by law.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) “By proscribing any unlawful business practice, section 17200 borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.” (Id.; see also Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969 [“Virtually any law can serve as the predicate for a section 17200 action.”].) “A UCL action is an equitable action by means of which a plaintiff may recover money or property obtained from the plaintiff or persons represented by the plaintiff through unfair or unlawful business practices. It is not an all-purpose substitute for a tort or contract action.” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173; see also Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1143 [UCL “borrows” violations from other laws by making them independently actionable as unfair competitive practices].)

Here, Defendant argues that Plaintiff’s Section 17200 claim is similar to Lagrisola v. North American Financial Corp. (2023) 96 Cal.App.5th 1178, 1189 whereby a California Court of Appeal affirmed a trial court’s decision to sustain a demurrer in an action brought by borrowers that claimed a Section 17200 violation against an unlicensed lender. (Mot., pg. 11.) The Court of Appeal reasoned that the borrowers failed to allege suffering any loss because of the lender’s unlicensed status. (Lagrisola, supra, 96 Cal.App.5th at p. 1189). The Court of Appeal then went further to state that “even if we accept that [defendant] was legally required to disclose its lender license number, and failed to do so, there are no allegations in the complaint indicating the [plaintiffs] relied on any belief or understanding that they may have regarding [defendant’s] licensure status at the time they entered the loan.” (Id. at p. 1193.) Defendant contends that similar to Lagrisola, here Plaintiff claims Altmore unlawfully initiated a commercial loan to Tenant while unlicensed and by charging excessive interest rates. (Mot., pgs. 10-11.) Unlike Lagrisola, however, Plaintiff is claiming injury from Altmore’s alleged unlawful business practice of lending money to a third-party borrower while allegedly being unlicensed in California and charging usurious interest. (FAC at ¶8.) Like Lagrisola, Plaintiff fails to show that its economic injury was the result of, i.e., caused by, the unfair business practice or false advertising of Altmore.

On Opposition, Plaintiff argues that the FAC makes clear and obvious that Defendant Altmore directly impacted Plaintiff’s ability to collect rent. (Opp., pg, 7.) Furthermore, Plaintiff argues that “[i]t has long been clear that “unlawful” claims may be brought based on violations of statutes that have no private cause of action and that a systematic failure to fulfill contractual obligations or similar promises independently violates the UCL. (See Zhang v. Superior Court (2013) 57 Cal.4th 364 [recognizing that a violation of a statute that does not have a private right of action may form the basis for a UCL claim]; State Farm v. Superior Court (1996) 45 Cal.App.4th 1093, 1104.) Plaintiff provides the FAC pleads in pertinent part as follows:

“THCD engaged in “unlawful” conduct by initiating commercial loans in California in violation of California Financial Code §§ 22000, et seq. without a) being licensed to initiate such loans in California or b) being exempt from licensure and by charging interest in excess of the statutory maximum rate applicable to such transactions as set forth in California Constitution Article XV, 1... [T]here is no doubt that any loan made by THCD to THC DESIGN, INC. and 1346 LA, LLC was an equity investment by THCD in THC DESIGN, INC. and 1346 LA, LLC rather than a loan... That THCD disregarded corporate and legal formalities of Tenant, manipulated the assets and liabilities between Tenant and THCD to concentrate the assets and interests in THCD and the liabilities in Tenant.” (FAC, ¶¶ 11-14, 27.)

Here, the Court finds that Plaintiff does not specifically address Defendant’s argument that Plaintiff’s FAC fails to plead that an economic injury was caused by Altmore being unlicensed or caused by unfair business practices or false advertising of Altmore. While the Court finds that Plaintiff’s allegation of usurious or excessive interest rates does not depend on Plaintiff’s allegations of Altmore’s license status, the Court does find that Plaintiff does not plead facts specifying the interest rate Altmore charged which was in excess of the applicable statutory minimum. Thus, Plaintiff neither specifies the interest rate Altmore charged or the statutory minimum interest rate and therefore fails to plead facts with sufficient particularity to state a cause of action for unfair business practices pursuant to Section 17200.

Code of Civil Procedure section 1060 authorizes actions for declaratory relief under a “written instrument” or “contract.” Declaratory relief generally operates prospectively to declare future rights, rather than to redress past wrongs. (Babb v. Superior Court (1971) 3 Cal.3d 841, 848, 92 Cal.Rptr. 179, 479 P.2d 379; Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1403, 120 Cal.Rptr.2d 392 (Gafcon ).) It serves to set controversies at rest before they lead to repudiation of obligations, invasion of rights or commission of wrongs. In short, the remedy is to be used in the interests of preventive justice, to declare rights rather than execute them. (Ibid.)

“To qualify for declaratory relief, [a party] would have to demonstrate its action presented two essential elements: ‘(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to [the party's] rights or obligations.’ ” (Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1582, 120 Cal.Rptr.3d 665.) (Jolley v. Chase Home Fin., LLC, 213 Cal. App. 4th 872, 909, 153 Cal. Rptr. 3d 546, 576 (2013), as modified on denial of reh'g (Mar. 7, 2013).)

Defendant argues that Plaintiff’s third cause of action for declaratory relief fails because Plaintiff lacks standing to challenge the alleged Loan agreement between Altmore and Tenant given Plaintiff does not allege it was a party to the loan agreement between Atlmore and Tenant. (Mot., pgs. 12013.) The FAC also does not allege that the Loan agreement between Altmore and tenant was made for the express benefit of Plaintiff. (Id.) Defendant provides that a “plaintiff lacks standing to challenge a contract for which the plaintiff is not a party or when the principal contract . . . was not made expressly for the benefit of plaintiff[.]” (Luis v. Orcutt Town Water Co. (1962) 204 Cal.App.2d 433, 442.) (Mot., pg. 12.)

Plaintiff argues that a declaratory relief claim can be used to determine the rights of competing creditors to an item of collateral in California. (Opp., pgs. 9-10.)Thus, Plaintiff is not required to be a party to the Loan agreement for Plaintiff’s declaratory relief claim to stand against Altmore. (Id.)

The Court finds that Plaintiff provides no legal authority in its Opposition to support that Plaintiff specifically has standing to bring a declaratory relief claim to determine the priority, extent, and validity of competing creditor claims. Moreover, Plaintiff does not plead facts establishing itself as a competing creditor in these circumstances. (Mot., pg. 9.) The Court notes that Plaintiff provides the following excerpt from paragraph 46 of the FAC:

“THCD claims it is owed more than 15 million dollars and is secured by licenses, equipment, and inventory” but “THCD cannot perfect an interest in cannabis licenses of THC DESIGN, INC” given the reasoning in the California bankruptcy case of Smith v. C&S Wholesale Grocers, Inc. (In Re Delano Retail Partners, LLC), No. 11-37711-B-7, 2017 Bankr. LEXIS 2397 (Bankr. E.D. Aug. 14, 2017).”

The Court, however, finds the foregoing excerpt incoherent and does not provide sufficient context to explain the significance of a cannabis license to this declaratory relief claim or the significance of the FAC’s citation to a California bankruptcy case. Causing further confusion, Plaintiff then “requests this Court find [Altmore] does not have a security interest in any cannabis licenses in the name of Tenant and that said cannabis licenses must be used to pay Plaintiff and other creditors of Plaintiff in advance of monies paid to [Altmore].” (Opp., pg. 9.) The Court is at a loss as to what Plaintiff is asserting here. As such, the Court finds Plaintiff has not pled sufficient facts to state a claim for declaratory relief.

Unjust enrichment is generally an inapplicable basis for restitution where the parties have an enforceable express contract, however, “restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason,” or “where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct.” (Durell, supra, 183 Cal.App.4th at p. 1370, 108 Cal.Rptr.3d 682.) “Common law principles of restitution require a party to return a benefit when the retention of such benefit would unjustly enrich the recipient; a typical cause of action involving such remedy is ‘quasi-contract.’ ” (Munoz v. MacMillan (2011) 195 Cal.App.4th 648, 661, 124 Cal.Rptr.3d 664; see Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 51, 57 Cal.Rptr.2d 687, 924 P.2d 996 [“Under the law of restitution, an individual may be required to make restitution if he is unjustly enriched at the expense of another.”].)

“Because [Plaintiff] does not dispute there were express form contracts in this case, he cannot assert a quasi-contract claim for restitution based on unjust enrichment.” (Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1138, 117 Cal.Rptr.3d 262.) “Although a plaintiff may plead inconsistent claims that allege both the existence of an enforceable agreement and the absence of an enforceable agreement, that is not what occurred here. Instead, [Sepanossian's] breach of contract claim pleaded the existence of ... enforceable agreement[s] and [his] unjust enrichment claim did not deny the existence or enforceability of [those] agreement[s]. [Sepanossian is] therefore precluded from asserting a quasi-contract claim under the theory of unjust enrichment.” (Klein, supra, 202 Cal.App.4th at pp. 1389-1390, 137 Cal.Rptr.3d 293.)

(Sepanossian v. Nat'l Ready Mix Co., Inc., 97 Cal. App. 5th 192, 207, 315 Cal. Rptr. 3d 373, 385–86 (2023).)

Here, Defendant argues that Plaintiff is precluded from making an unjust enrichment claim because “[t]here is no cause of action in California labeled ‘unjust enrichment,’” (City of Oakland v. Oakland Raiders (2022) 83 Cal.App.5th 458, 477.) For this reason alone, the Court should sustain the demurrer. (See Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1139 [affirming demurrer because unjust enrichment is not a proper cause of action].) (Mot., pg. 13.) Defendant, however, proceeds to reason that assuming Plaintiff could assert a standalone claim for unjust enrichment, the elements for a claim of unjust enrichment are (1) receipt of benefit; and (2) unjust retention of the benefit at the expense of another. (Lectrodryer v. Seoulbank (2000) 77 Cal.App.4th 723, 726.) Plaintiff does not state what the “substantial benefit” is that Defendant Altmore received or allege that premises were exclusively rented to Tenant. Plaintiff merely pleads that it “conferred a substantial benefit upon [Altmore]” and “[Altmore] has been unjustly enriched and [Plaintiff[] has incurred damages in an amount in excess of $400,000 plus other sums according to proof at trial.” (FAC at ¶¶49, 50.)

Plaintiff argues that “[c]ommon counts like the Fourth Cause of Action for Unjust Enrichment and the Fifth Cause of Action for Quantum Meruit are not subject to attack by general demur or by special demur for uncertainty.” (Auckland v. Conlin (1920) 203 Cal. 776, 778, accord Smith v. Bentson (1932) 127 Cal.App. Supp. 789, 791.) Moreover, California courts are mixed as to whether a separate cause of action for unjust enrichment exists. (See Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1138.)

Here, the Court agrees that California courts are mixed as to whether a separate cause of action for unjust enrichment exists and finds Plaintiff asserts sufficient legal authority to plead a separate cause of action for unjust enrichment. Yet, the Court finds that using its discretion to permit Plaintiff to plead this as a separate cause of action does not cure that fact that Plaintiff does not plead facts establishing what the substantial benefit is that Plaintiff conferred to Defendant. Moreover, Plaintiff’s argument that unjust enrichment is not subject to attack by general demurrer for uncertainty is inapplicable here because Defendant demurs to Plaintiff’s unjust enrichment claim on grounds beyond uncertainty. Defendant also demurs on the basis of sufficiency and the inapplicability of the alter ego doctrine. Accordingly, the Court finds Plaintiff’s opposition fails to establish Plaintiff has pled facts sufficient to state a claim for declaratory relief.

Thus, the demurrer to the fourth cause of action for declaratory relief is SUSTAINED.

Quantum meruit refers to the well-established principle that “the law implies a promise to pay for services performed under circumstances disclosing that they were not gratuitously rendered.” (Long v. Rumsey (1938) 12 Cal.2d 334, 342, 84 P.2d 146.) To recover in quantum meruit, a party need not prove the existence of a contract (Maglica v. Maglica (1998) 66 Cal.App.4th 442, 449, 78 Cal.Rptr.2d 101; Mayborne v. Citizens' Trust & Savings Bank (1920) 46 Cal.App. 178, 182, 188 P. 1034), but it must show the circumstances were such that “the services were rendered under some understanding or expectation of both parties that compensation therefor was to be made” (Estate of Mumford (1916) 173 Cal. 511, 523, 160 P. 667; see Long v. Rumsey, supra, 12 Cal.2d at p. 342, 84 P.2d 146; Crane v. Derrick (1910) 157 Cal. 667, 672, 109 P. 31; see generally 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 113, p. 138). (Huskinson & Brown v. Wolf, 32 Cal. 4th 453, 458, 84 P.3d 379, 381 (2004).)

In its moving papers, Defendant argues that Plaintiff’s quantum meruit claim fails because (a) Plaintiff’s entire lawsuit is premised on an express Loan agreement; and (b) no services were rendered. Defendant provides that “[I]t is well settled that there is no equitable basis for an implied-in-law promise to pay reasonable value when the parties have an actual agreement covering compensation.” (Hedging Concepts v. First Alliance Mortgage, supra, 41 Cal.App.4th at p. 1419.) Moreover, Plaintiff’s claim rests on one vague allegation that “Plaintiff conferred a substantial benefit upon [Altmore].” (FAC, ¶ 57.) Thus, the FAC does not claim Altmore requested the alleged services or “substantial benefit” that Plaintiff apparently conferred.

Plaintiff addresses Defendant’s arguments demurring to quantum meruit in the same analysis that it addresses Defendant’s arguments as to unjust enrichment and repeats that such claims are not subject to attack by demurrer for uncertainty. (Opp., pgs. 7-8.)

The Court notes that Plaintiff does not address Defendant’s argument that (1) Plaintiff fails to plead Altmore requested any alleged services or substantial benefit; or (2) Plaintiff does not plead facts as to the nature of such alleged benefit, beyond the conclusory allegation that a substantial benefit was conferred by Plaintiff on Altmore. The Court finds these conclusory allegations insufficient to state a cause of action for quantum meruit. Moreover, the Court finds the express Loan agreement between Plaintiff and Defendant precludes Plaintiff from having an equitable basis for pleading a claim for quantum meruit.

Where the defect raised by a motion to strike or by demurrer is reasonably capable of cure, leave to amend is routinely and liberally granted to give the plaintiff a chance to cure the defect in question. (Velez v. Smith (2006) 142 Cal.App.4th 1154, 1174.)

Plaintiff’s Opposition papers request leave to amend. Plaintiff asks that if the Court sustains the instant Demurrer in whole or in part, Plaintiff requests leave to amend and also to allow Plaintiff to add a cause of action for breach of contract, breach of the lease, fraud, and interference. (Opp., pg. 10.) Plaintiff further argues that it has good cause to believe that documents evidencing statements and internal communications between Altmore and Tenant concerning the so-called loan transaction remain in the exclusive custody and possession of Altmore. (Opp., pg. 10.) Plaintiff states that Altmore should not be allowed to successfully demur to the FAC, and continue to refuse to provide meaningful discovery responses that would allow Plaintiffs to amend that FAC. (Id.)

Plaintiff states that on September 11, 2024, Plaintiff served a first set of requests for production of documents on Altmore (Exhibit “A” to the Declaration of Maurice Wainer), and also thereafter provided a proposed protective order to allow Altmore to maintain the confidentiality of any documents produced. (Declaration of Maurice Wainer (“Wainer Dec.”), ¶ 3, Ex. A.) Further, Plaintiff believes based on the Loan Agreement [Altmore] placed into evidence in the matter of THCD v THC Designs, et al. (Los Angeles Superior Court Case Number 23STCV26135), Plaintiff has good cause to believe that the documents requested from Altmore will show that (a) Tenant was charged a usurious interest rate of not less than twenty-three and one-third percent (23 1/3%) per annum of the aggregate outstanding principal; (b) Altmore or its affiliates or insiders owned an equity interest in Tenant and had no real prospect of repayment of the loan when duel (c) Altmore was the owner of warrants allowing Altmore to convert its debt to equity at any time; and (d) there was a Handshake Agreements to grant equity in THC DESIGN Holdings, Inc [Tenant] as shown in the table and Schedule 5.19(B) to the Loan Agreement (Exhibit “B” to the Declaration of Maurice Wainer), and as such any alleged defects raised in demurrer can be cured. (Wainer Dec., ¶ 4, Ex. B.)

The Court finds that even if such documentation and discovery support Plaintiff’s alter ego theory of liability, it still would not cure the defective pleadings of causes of action (4) and (5) for unjust enrichment and quantum meruit, respectively, because such causes of action are preempted by the express Loan agreement. Thus, granting Plaintiff leave to amend as to the fourth and fifth causes of action will serve no purpose. The Court will, however, grant Plaintiff leave to amend as to causes of action (2) and (3) for Unfair Business Practices and Declaratory Relief, respectively. The Court however notes that the FAC’s pleadings as to causes of action (2) and (3) are significantly defective at present for all the foregoing reasons mentioned herein. Thus, significant amendments to the FAC’s pleadings would be required to cure such deficiencies.

In sum, the Court SUSTAINS Defendant Altmore’s demurrer in its entirety (causes of action (2) - (5)) with LEAVE TO AMEND as to causes of action (2) and (3) for Unfair Business Practices and Declaratory Relief, respectively, while DENYING LEAVE TO AMEND as to causes of action (4) and (5) for Unjust Enrichment and Quantum Meruit, respectively.

The Court SUSTAINS the demurrer in its entirety and grants leave to amend in part and denies leave to amend in part.

[1] Plaintiff’s Opposition uses the abbreviation “THCD” for Defendant THCD Altmore, LLC whereas the Court and Defendant refer to Defendant as “Altmore” for purposes of clarity and to distinguish it from non-party Tenant “THC Design Inc.”