Judge Stephen P. Pfahler, Case 22CHCV00021 2022-10-06 Tentative Ruling

· 2^nd Cause of Action: Breach of the Implied Covenant of Good Faith and Fair Dealing

Plaintiff Gustavo Valdivia alleges a 49% ownership stake in Baltoro Investment Group, LLC with Defendant Matthew Edwards holding the other 51% interest. The parties executed the Baltaro Operating Agreement on August 30, 2019 for the purpose of operating a licensed, retail cannabis business in the City of Los Angeles. According to Valdivia, the City of Los Angeles requires a 51% ownership interest by a member of the city operated Social Equity Program (SEP).

The application process requires payment of fees. Plaintiff alleges Defendant executed an “authorization” form thereby allowing Plaintiff to represent the business entity through the application and permitting process. On October 6, 2020, Valdivia paid $9,075 fee.

On October 25, 2020, Valdivia alleges that Edwards expressed an interest in operating an “illicit-market enterprise.” Valdivia declined this offer and expressed interest in continuing with the licensing process.

On January 22, 2021, Valdivia executed a lease for retail operations. Valdivia alleges Edwards approved all proposed improvements/build outs/design elements for the premises. After a series of delays, Defendant submitted the licensing paperwork to the City of Los Angeles.

On October 18, 2021, Valdivia submitted an application for inspection. On November 17, 2021, Defendant allegedly cancelled said inspection, thereby preventing the issuance of a temporary license. On November 18, 2021, Edwards submitted an application to remove Valdivia as an owner of the premises, which Valdivia contends violates the terms of the operating agreement.

On January 11, 2022, Valdivia filed a verified complaint for Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, Negligence, Intentional Infliction of Emotional Distress, and Declaratory Relief. On February 4, 2022, the court granted Plaintiff’s ex parte application for a temporary restraining order enjoining any removal of “Plaintiff as a minority shareholder in Baltoro Investments Group LLC,” and to otherwise maintain the “status quo” for the entity.

On May 12, 2022, the court denied the motion for preliminary injunction. On the same date, the court sustained the demurrer of Matthew Edwards to the complaint. The motion to strike was determined moot. On June 10, 2022, Glas Tavo, LLC[1] and Gustavo Valdivia filed an unverified first amended complaint for Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, Negligence, Intentional Infliction of Emotional Distress, and Declaratory Relief.

The court takes judicial notice of Exhibits B-C in that the items showing both the recognition of the LLC and termination of the same entity constitute official acts of the State of California.

(Friends of Shingle Springs Interchange, Inc. v. County of El Dorado (2011) 200 Cal.App.4th 1470, 1484.) The court declines to take judicial notice of Exhibits A & D in that they constitute submitted forms for filing and therefore fail to reflect an actual act of the Secretary of State.

Defendant Matthew Edwards submits a demurrer to the entire first amended complaint of on grounds of standing, and lack of factual specificity for the individual causes of action. Plaintiff in opposition relies on citation to the operative complaint in reiteration of the factual basis for the claims. Defendant in reply cites the request for judicial notice regarding the corporate status and members of the corporate entities. Defendant reiterates the lack of standing and individual cause of action items, including lack of duty and lack of facts demonstrating intentional conduct. Edwards in reply challenge the attempted substitution of Glas Tavo, LLC for Glas Tavo & Associates, LLC, as the real party in interest.

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

“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; Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139 [“[U]nder our liberal pleading rules, where the complaint contains substantive factual allegations sufficiently apprising defendant of the issues it is being asked to meet, a demurrer for uncertainty should be overruled or plaintiff given leave to amend.]

Defendant contends Plaintiff lacks standing to actually prosecute the subject action, as Plaintiff is not a party to the operating agreement relied upon in support of the instant action. The operating agreement attached to the unverified first amended complaint lists Baltoro Investment Group, LLC, a Wyoming limited liability company as the managing entity. The agreement is executed by Jose Valdivia as Managing Member of Glas Tavo & Associates, LLC. Schedule A of the agreement only lists the members as defendant Edwards, Glas Tavo & Associates, LLC. [First Amend. Comp., Ex. A.] Glas Tavo & Associates, LLC now was deemed a suspended corporation by the Secretary of State, and therefore cannot appear in the action. [Req. Jud. Not., Ex. B.]

Plaintiff in opposition describes the lack of standing argument “as somewhat confusing,” but apparently concedes at least in part that the confusion comes from its own “formatting error” in drafting the first amended complaint, whereby “Glas Tavo LLC” should be the referenced signatory party to the agreement. Plaintiff concurrently moves for leave to add “Glas Tavo LLC” as a party to the action, and challenges any denial of leave as an abuse of discretion.

Plaintiff otherwise concedes to the status of Glas Tavo & Associates as a dissolved entity, but offers extrinsic argument of reformation on September 10, 2021—a date prior to the January 2022 filed complaint in the instant action. While the opposition proceeds to indiscriminately refer to Glas Tavo & Associates as the operative entity after conceding to the suspension of the business entity, the court assumes Plaintiff in fact means to refer to Glas Tavo, LLC as the current entity in good standing.

The court declines to consider the extrinsic argument, or grant sua sponte grant the “motion” for leave to amend to designate Glas Tavo, LLC as a substituted party into the action after the addition was made without leave of court. Even assuming Glas Tavo, LLC is properly before the court, however, the court finds the arguments in opposition regarding the assumption of Glas Tavo & Associates LLC assets and liabilities by Glas Tavo, LLC, and therefore a valid substitution into the operating agreement by Glas Tavo, LLC, lacks support in the operative pleading. [See First Amend. Comp., ¶ 9.] The confines of the demurrer prevent any such determination either way, even with court acceptance of the representation of the extrinsic inference.

The court also finds no support for the potential alternative argument regarding a second agreement. [See First Amend. Comp., ¶ 15, Ex. J.] The purported agreement this time involves a new entity, Valtoro Investment Group, LLC, who, again, is not an identified party in any way to this action.

“Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.” (Code Civ. Proc., § 367.) “Someone who is not a party to the contract has no standing to enforce the contract or to recover extra-contract damages for wrongful withholding of benefits to the contracting party.” (Hatchwell v. Blue Shield of California (1988) 198 Cal.App.3d 1027, 1034.) The demurrer is therefore sustained as to entire first amended complaint on this basis. While the emotional distress claim constitutes an intentional tort directed at Valdavia, the claim still depends on the alleged lost business opportunity from the underlying operating agreement, and incorporates all prior allegations as well. The court therefore declines to consider the merits given the threshold issues presented in the demurrer.

Plaintiff is granted 30 days leave to amend. Plaintiff may NOT add any new claims or causes of action. “Following an order sustaining a demurrer or a motion for judgment on the pleadings with leave to amend, the plaintiff may amend his or her complaint only as authorized by the court's order. (Citation.) The plaintiff may not amend the complaint to add a new cause of action without having obtained permission to do so, unless the new cause of action is within the scope of the order granting leave to amend.” (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) The court grants Plaintiff leave to add Glas Tavo, LLC as a plaintiff to the action ONLY. Defendant may file a motion to strike as to any new causes of action or other parties added without leave of court.

Because the court has now twice sustained the demurrer with leave to amend, the subject ruling now counts towards the amendment limit guidelines. “In response to a demurrer and prior to the case being at issue, a complaint or cross-complaint shall not be amended more than three times, absent an offer to the trial court as to such additional facts to be pleaded that there is a reasonable possibility the defect can be cured to state a cause of action. The three-amendment limit shall not include an amendment made without leave of the court pursuant to Section 472, provided the amendment is made before a demurrer to the original complaint or cross-complaint is filed.” (Code Civ. Proc., § 430.41, subd. (e)(1).)

[1]Neither the May 12, 2022 order sustaining the demurrer, or any subsequent order shows an order for leave from the court to add Glas Tavo, LLC as a party to the action.