Judge Stephen P. Pfahler, Case 22CHCV00236 2023-02-06 Tentative Ruling

Judge: Stephen P. Pfahler, Case: 22CHCV00236, Date: 2023-02-06 Tentative Ruling

Case Number: 22CHCV00236 Hearing Date: February 6, 2023 Dept: F49

Dept. F-49

Date: 2-6-23

Case #22CHCV00236 (consolidated with 22CHCV00319)

Trial Date: Not Set

DEMURRER

MOVING PARTY: Defendant, Mina Kateb

RESPONDING PARTY: Plaintiff, Monocent, Inc.

RELIEF REQUESTED

Demurrer to the First Amended Complaint

· 1^st Cause of Action: Breach of Fiduciary Duty–Duty of Loyalty

· 2^nd Cause of Action: Breach of Fiduciary Duty – Duty of Care

· 3^rd Cause of Action: Intentional Interference with Prospective Business Advantage

· 4^th Cause of Action: Negligent Interference with Prospective Economic Advantage

· 5^th Cause of Action: Intentional Interference with Contractual Relations

· 6^th Cause of Action: Violation of Business and Professions Code section 17200

· 9^th Cause of Action: Fraud – Negligent Misrepresentation

SUMMARY OF ACTION

22CHCV00236

Defendant Mina Kateb was “hired … as a managing director” with Plaintiff Monocent, Inc. on an unspecified date for an unspecified period of time. Monocent alleges Kateb improperly diverted customers, vendors, and business suppliers for “personal benefit,” diverting future business, and taking trade secrets.

On April 7, 2022, Monocent filed its complaint for Breach of Fiduciary Duty–Duty of Loyalty, Breach of Fiduciary Duty – Duty of Care, Intentional Interference with Prospective Business Advantage, Negligent Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, Violation of Business and Professions Code section 17200, Negligence, Fraud—Intentional Misrepresentation, Fraud—Negligent Misrepresentation, Misappropriation of Trade Secrets, and Declaratory Relief. On October 13, 2022, the court sustained the demurrer of Kateb to the complaint. On November 14, 2022, Monocent filed a first amended complaint for Breach of Fiduciary Duty–Duty of Loyalty, Breach of Fiduciary Duty – Duty of Care, Intentional Interference with Prospective Business Advantage, Negligent Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, Violation of Business and Professions Code section 17200, Negligence, Fraud—Intentional Misrepresentation, Fraud—Negligent Misrepresentation, Misappropriation of Trade Secrets, and Declaratory Relief.

22CHCV00319

On May 10, 2022, Mina Kateb filed a complaint for Fraudulent Representation, Breach of Fiduciary Duty–Duty of Loyalty, Breach of Fiduciary Duty – Duty of Care (3^rd and 4^th), Negligence, Retaliation in Violation of Labor Code section 1102.5, Wrongful Constructive Termination, Unfair Competition, Intentional Infliction of Emotional Distress, Intentional Interference with Contractual Relations, Negligent Interference with Prospective Economic Advantage, Breach of Contract, and Declaratory Relief. On June 15, 2022, Kateb filed a first amended complaint for Fraudulent Representation, Breach of Fiduciary Duty–Duty of Loyalty, Breach of Fiduciary Duty – Duty of Care (3^rd and 4^th), Negligence, Retaliation in Violation of Labor Code section 1102.5, Wrongful Constructive Termination, Unfair Competition, Intentional Infliction of Emotional Distress, negligent Infliction of Emotional Distress, Defamation, Intentional Interference with Prospective Contractual Relations, Negligent Interference with Prospective Contractual Relations, Breach of Contract, and Declaratory Relief.

On June 27, 2022, the court entered the stipulation of the parties relating and consolidating the cases. On December 30, 2022, the court whereby the court clarified the consolidation stipulation: 22CHCV00236 remains the lead case, and 22CHCV00319 now presents as a cross-complaint.

RULING: Sustained without Leave to Amend in Part/ Sustained with Leave to Amend in Part.

Request for Judicial Notice: Denied.

The court declines to take judicial notice of the exhibits in that the items constitute submitted forms for filing by Monocent, and therefore are not reflective of an actual official act of the Secretary of State. [Declaration of Alexander Gura.] (Friends of Shingle Springs Interchange, Inc. v. County of El Dorado (2011) 200 Cal.App.4th 1470, 1483-1484.) The court also declines to consider Exhibit D, as responses to discovery are extrinsic to any consideration of the operative complaint within the parameters of a demurrer.

Defendant Kateb brings the subject demurrer to all causes of action in the Monocent first amended complaint, except the seventh, eighth, tenth, and eleventh causes of action. Kateb challenges the complaint on grounds of preemption under the California Uniform Trade Secrets Act (CUTSA), and insufficiently pled facts for the non-preempted claims. The court electronic filing system shows no opposition or reply filed under either case number at the time of the tentative ruling publication cutoff. Plaintiff represents a meet and confer effort on the CUTSA claims. [Gura Decl., ¶ 3.] The demurrer is unopposed, and the court electronic filing system shows no reply at the time of the tentative ruling publication cutoff.

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.]

Kateb provides extensive background regarding the parties’ interactions leading to the case. As addressed in the standard for ruling on a demurrer, the court will not consider the discovery responses attached to the Gura declaration or any extrinsic facts relied upon in support of the demurrer. The court only focuses on the claims as pled.

1^st Cause of Action, Breach of Fiduciary Duty–Duty of Loyalty

3^rd Cause of Action, Intentional Interference with Prospective Business Advantage

4^th Cause of Action, Negligent Interference with Prospective Economic Advantage

5^th Cause of Action, Intentional Interference with Contractual Relations

6^th Cause of Action, Violation of Business and Professions Code section 17200

On the Breach of Fiduciary Duty–Duty of Loyalty, Intentional Interference with Prospective Business Advantage, Negligent Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, and Violation of Business and Professions Code section 17200 causes of action, Kateb contends preemption under CUTSA precludes said causes of action.

“a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets.

(b) This title does not affect (1) contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are not based upon misappropriation of a trade secret, or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.”

(Civ. Code, § 3426.7, subd. (a-b).)

CUTSA provides the “exclusive civil remedy for conduct falling within its terms.” (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 236 disapproved of by Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310 on unrelated grounds.) Civil Code section 3426.7, subdivision (b) “preempts common law claims that are ‘based on the same nucleus of facts as the misappropriation of trade secrets claim for relief.’” (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 958.) “A cause of action for monetary relief under CUTSA may be said to consist of the following elements: (1) possession by the plaintiff of a trade secret; (2) the defendant's misappropriation of the trade secret, meaning its wrongful acquisition, disclosure, or use; and (3) resulting or threatened injury to the plaintiff. (3426.3; see id., §§ 3426.1, 3426.2.) The first of these elements is typically the most important, in the sense that until the content and nature of the claimed secret is ascertained, it will likely be impossible to intelligibly analyze the remaining issues.” (Silvaco Data Systems v. Intel Corp., supra, 184 Cal.App.4th at p. 220.)

The existence of a trade secret itself remains a required element for determination of preemption. (See Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 508.) The first amended complaint itself only provides conclusions regarding trade secrets throughout the first, third, fourth, fifth and sixth causes of action, with the subject secret finally defined in the tenth cause of action for misappropriation of trade secret. [First Amend. Comp., ¶¶ 12, 44, 92, 124, 127, 146, 165, 174. 213-217.] Said allegation in the tenth cause of action constitutes a valid form of trade secret: “‘Trade secret’ means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; ¿and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Civ. Code, § 3426.1, subd. (d)(2); Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1155.)

Nevertheless, given Plaintiff’s reliance on the trade secret allegations cited above, the operative complaint lacks sufficient facts distinguishing the claims as separate and independently supported. (Angelica Textile Services, Inc. v. Park, supra, 220 Cal.App.4th at pp. 506-507; Silvaco Data Systems v. Intel Corp., supra, 184 Cal.App.4th at p. 236 disapproved of by Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310 on unrelated grounds.) The court finds the unopposed demurrer establishes the subject claims are therefore preempted. The demurrer to the Breach of Fiduciary Duty–Duty of Loyalty, Intentional Interference with Prospective Business Advantage, Negligent Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, and Violation of Business and Professions Code section 17200 causes of action are sustained without leave to amend. The court previously sustained the demurrer on this ground, and while Plaintiff filed an amended complaint, the court infers from the lack of opposition that Plaintiff concedes it cannot present facts to establish the subject causes of action beyond the preemptive scope of the CUTSA.

1^st Cause of Action, Breach of Fiduciary Duty–Duty of Loyalty

2^nd Cause of Action, Breach of Fiduciary Duty – Duty of Care

Kateb challenges the subject causes of action on grounds that the complaint lacks any allegation of an operative employment relationship, and therefore no fiduciary duty can exist.

A fiduciary duty is founded upon a special relationship imposed by law or under circumstances in which “confidence is reposed by persons in the integrity of others” who voluntarily accept the confidence. (Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg (1989) 216 Cal.App.3d 1139, 1150.) “A fiduciary or confidential relationship can arise when confidence is reposed by persons in the integrity of others, and if the latter voluntarily accepts or assumes to accept the confidence, he or she may not act so as to take advantage of the other's interest without that person's knowledge or consent.” (Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1101–02.) “The elements of a cause of action for breach of a duty of loyalty, by analogy to a claim for breach of fiduciary duty, are as follows: (1) the existence of a relationship giving rise to a duty of loyalty; (2) one or more breaches of that duty; and (3) damage proximately caused by that breach. (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 410.)

Kateb specifically challenges any foundational conclusions for a fiduciary duty by noting the existence of the independent contractor claims in the operative complaint [First Amend. Comp., ¶¶ 5, 12, 24-25, 45, 50) notwithstanding the conclusions and numerous legal citations regarding the existence of a fiduciary duty owed to the corporate entity [First Amend. Comp., ¶¶ 13, 79, 81, 83, 87, 91, 100-101, ].

The demurrer depends on a characterization of the independent contactor relationship between the parties as akin to a financial services provision agreement, on which any finding of a fiduciary relationship is regularly rejected. The reasoning behind the provision of financial services agreements finds support in that said agreements generally involve “a typical business relationship among equally sophisticated entities dealing at arm's length than of a fiduciary relationship.” (First Citizens Federal Sav. and Loan Ass'n v. Worthen Bank and Trust Co., N.A. (9th Cir. 1990) 919 F.2d 510, 514.) Independent contractor agreements may also share such a characterization. (Southern Pacific Thrift & Loan Assn. v. Savings Assn. Mortgage Co. (1999) 70 Cal.App.4th 634, 638–640.)

Kateb also seeks to distinguish the plain language of the operative complaint alleging Kateb as a “de facto” corporate officer, thereby owing a fiduciary duty to the corporate entity. “‘Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders.’” (Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d 327, 345; Tritek Telecom, Inc. v. Superior Court (2009) 169 Cal.App.4th 1385, 1390.) The argument relies on an effort to discredit any reliance on an unpublished federal district court opinion, with little to no argument addressing the actual law on the subject. The court however declines to make the arguments for Plaintiff in support of the argument regarding a potential basis for an independent contractor in fact servicing as a “de facto” corporate officer. The court therefore sustains the demurrer with leave to amend as to the second cause of action for Breach of Fiduciary Duty – Duty of Care. The court declines to consider the merits of the arguments regarding the Breach of Fiduciary Duty–Duty of Loyalty given the ruling sustaining the demurrer without leave to amend.

3^rd Cause of Action, Intentional Interference with Prospective Business Advantage

4^th Cause of Action, Negligent Interference with Prospective Economic Advantage

Kateb challenges the elements of the subject cause of action on grounds that the operative complaint lacks facts establishing independently wrongful conduct. The court declines to address the merits of the claim given the finding of preclusion under CUTSA.

9^th Cause of Action, Fraud – Negligent Misrepresentation: Sustained with Leave to Amend.

Kateb challenges the factual basis of the fraud claim.

“Negligent misrepresentation is a separate and distinct tort, a species of the tort of deceit. ‘Where the defendant makes false statements, honestly believing that they are true, but without reasonable ground for such belief, he may be liable for negligent misrepresentation, a form of deceit.’” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407.) “‘The elements of fraud, which give rise to the 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.’” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

The complaint relies on a claim that Kateb misrepresented certain expertise in employment and regulatory matters, as related to company operations and FDA compliance procedures. [First Amend. Comp., ¶¶ 204-205.] Kateb contends such a theory relies on an improper opinion, rather than an actual factual representation. Misrepresentations must be made about past or existing fact. Opinions are not treated as representations of fact. (Neu-Visions Sports, Inc. v. Soren/McAdam/Bartells (2000) 86 Cal.App.4th 303, 309–310; Agricultural Ins. Co. v. Superior Court (1999) 70 Cal.App.4th 385, 390.) The conveyance of an ability to manage operations and meet compliance requirements for government regulations lacks support for the finding of an objectively factual representation. Nothing in the complaint establishes how a personal belief in the ability to meet certain work requirements constitutes a factual representation. The demurrer is sustained with leave to amend.

In summary, the court sustains the demurrer to the Breach of Fiduciary Duty–Duty of Loyalty, Intentional Interference with Prospective Business Advantage, Negligent Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, Violation of Business and Professions Code section 17200, without leave to amend. The tenth cause of action for misappropriation of trade secrets may subsume all facts for the subject claims. The demurrer to the Breach of Fiduciary Duty – Duty of Care and Fraud – Negligent Misrepresentation causes of action are sustained with leave to amend.

Plaintiff is granted 20 days leave to amend. Plaintiff may not add any new causes of action without leave of court but may add facts to all returning causes of action. (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) If Plaintiff fails to timely file an amended complaint, Kateb shall answer the remaining claims upon the lapse of the amendment deadline. If Plaintiff adds any new claims without leave of court, Kateb may bring a motion to strike on these items.

“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).) The court has now considered two iterations of the complaint. The court will consider the applicable standard should a second amended complaint and a demurrer get filed.

Kateb to give notice.

Dept. F-49

Date: 2-6-23 c/f 11-10-22

Case #22CHCV00236 (consolidated with 22CHCV00319)

Trial Date: Not Set

DEMURRER

MOVING PARTY: Cross-Defendants, Monocent, Inc., et al.

RESPONDING PARTY: Cross-Complainant, Mina Kateb

RELIEF REQUESTED

Demurrer to the First Amended Cross-Complaint (22CHCV00319)

· 2^nd Cause of Action: Breach of Fiduciary Duty–Duty of Loyalty

· 3^rd Cause of Action: Breach of Fiduciary Duty – Duty of Care

· 4^th Cause of Action: Breach of Fiduciary Duty – Duty of Care

· 6^th Cause of Action: Retaliation in Violation of Labor Code section 1102.5

· 7^th Cause of Action: Wrongful Constructive Termination

· 9^th Cause of Action: Intentional Infliction of Emotional Distress

· 10^th Cause of Action: Negligent Infliction of Emotional Distress

SUMMARY OF ACTION

22CHCV00236

22CHCV00319

RULING: Sustained with Leave to Amend in Part/Overruled in Part.

Request for Judicial Notice: Granted.

The court takes judicial notice of the filing of the pleadings, but cannot take judicial notice of the content of the pleadings for the truth of the matter asserted.

Cross-Defendants Shervin Taheri, Hooman Sahrapeyma, and Monocent, Inc. bring the subject demurrer to the second, third, fourth, sixth, seventh, ninth and tenth causes of action for Breach of Fiduciary Duty–Duty of Loyalty, Breach of Fiduciary Duty – Duty of Care, Breach of Fiduciary Duty – Duty of Care, Retaliation in Violation of Labor Code section 1102.5, Wrongful Constructive Termination, Intentional Infliction of Emotional Distress, and Negligent Interference with Emotional Distress in the first amended cross complaint of Kateb. Cross-Defendants contend Kateb lacks standing, fails to allege sufficient facts, workers’ compensation preemption, and lack of duty.

Kateb in opposition maintains standing to bring the action as a direct claim, not a derivative claim, and alternatively alleges futility. Kateb next counters that the employment claims are properly pled, and denies any claims of a sham pleading. Finally, Kateb defends the emotional distress claim based on the alleged conduct of cross-defendants.

Cross-Defendants in reply challenges the “new” allegations in the opposition, reiterates the lack of standing argument, and contends the opposition lacks sufficient address of the arguments against the emotional distress claims.

2^nd Cause of Action: Breach of Fiduciary Duty–Duty of Loyalty

3^rd Cause of Action: Breach of Fiduciary Duty – Duty of Care

4^th Cause of Action: Breach of Fiduciary Duty – Duty of Care

Shervin Taheri and Hooman Sahrapeyma contend the Breach of Fiduciary Duty–Duty of Loyalty, Breach of Fiduciary Duty – Duty of Care, and Breach of Fiduciary Duty – Duty of Care improperly constitute a derivative action, and Kateb lacks standing to bring such a claim. Kateb counters that the operative cross-complaint alleges a direct claim, with the corporate entity only a nominal cross-defendant. Kateb additionally alleges futility in regards with the procedural requirements for proceeding. Cross-Defendants reiterates the improper derivative liability arguments in reply.

“A shareholder's derivative suit seeks to recover for the benefit of the corporation and its whole body of shareholders when injury is caused to the corporation that may not otherwise be redressed because of failure of the corporation to act. Thus, ‘the action is derivative, i.e., 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.’ (Citations.) ‘A stockholder's derivative suit is brought to enforce a cause of action which the corporation itself possesses against some third party, a suit to recompense the corporation for injuries which it has suffered as a result of the acts of third parties. The management owes to the stockholders a duty to take proper steps to enforce all claims which the corporation may have. When it fails to perform this duty, the stockholders have a right to do so. Thus, although the corporation is made a defendant in a derivative suit, the corporation nevertheless is the real plaintiff and it alone benefits from the decree; the stockholders derive no benefit therefrom except the indirect benefit resulting from a realization upon the corporation's assets. The stockholder's individual suit, on the other hand, is a suit to enforce aright against the corporation which the stockholder possesses as an individual.’” (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106–107.)

“No action may be instituted or maintained in right of any domestic or foreign corporation by any holder of shares or of voting trust certificates of the corporation unless both of the following conditions exist:

(1) The plaintiff alleges in the complaint that plaintiff was a shareholder, of record or beneficially, or the holder of voting trust certificates at the time of the transaction or any part thereof of which plaintiff complains or that plaintiff's shares or voting trust certificates thereafter devolved upon plaintiff by operation of law from a holder who was a holder at the time of the transaction or any part thereof complained of; provided, that any shareholder who does not meet these requirements may nevertheless be allowed in the discretion of the court to maintain the action on a preliminary showing to and determination by the court, by motion and after a hearing, at which the court shall consider such evidence, by affidavit or testimony, as it deems material, that (i) there is a strong prima facie case in favor of the claim asserted on behalf of the corporation, (ii) no other similar action has been or is likely to be instituted, (iii) the plaintiff acquired the shares before there was disclosure to the public or to the plaintiff of the wrongdoing of which plaintiff complains, (iv) unless the action can be maintained the defendant may retain a gain derived from defendant's willful breach of a fiduciary duty, and (v) the requested relief will not result in unjust enrichment of the corporation or any shareholder of the corporation; and

(2) The plaintiff alleges in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.”

(Corp. Code, § 800, subd. (b).)

The plain language of the first amended cross-complaint specifically alleges Taheri as a shareholder and acting “against” the interests of the corporate entity, and a nominal claim that said corporate operations impacts harmed Kateb directly. [First Amend. Cross-Comp., ¶¶ 55-56, 63, 65, 70, 72.] Notwithstanding the language in the operative pleading seeking to dispel any argument against a derivative action and/or plead a direct action [First Amend. Cross-Comp., ¶¶ 61, 68, 75], the court finds the plain language of the operative pleading and arguments in opposition insufficiently distinguish any actual claim of derivative versus direct liability. The first amended cross-complaint itself in fact alleges a proposal for Kateb to become a shareholder, but said agreement was never executed, thereby contradicting any arguments for a direct action. In other words, even if the court disregards the plain language regarding the devaluation of the corporate entity for shareholders for purposes of the derivative action, which may include other shareholders beyond Kateb, the court still finds the pleading the operative pleading presents an improper claim as either in a direct liability capacity as well. [First Amend. Cross-Comp., ¶¶ 12-14, 17.] (Paclink Communications Internat. v. Superior Court (2001) 90 Cal. App. 4th 958, 964.) The court therefore declines to consider the futility discussion. The demurrer is sustained.

6^th Cause of Action: Retaliation in Violation of Labor Code section 1102.5

Cross-Defendants challenge the subject cause of action on grounds of standing in that Kateb was never an employee of the corporation, but only acted as an independent contractor. Kateb in opposition relies on case law for the argument regarding factors for determining an employee versus a contractor as a basis of opposing the demurrer, without selective citation to allegations in the operative complaint.

“[A] prerequisite to asserting a violation of Labor Code section 1102.5 is the existence of an employer-employee relationship at the time the allegedly retaliatory action occurred.” (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 288.) The first amended cross-complaint itself only alleges an non-memorialized agreement for the provision of “consultation” services in exchange for payment of $5,000/month, which notwithstanding the lack of execution, Kateb began providing said services. [First Amend. Cross-Comp., ¶¶ 13-14, 19, 21.] The “consulting fee” increased to $8,000/month. [[First Amend. Cross-Comp., ¶ 28.] The operative cause of action incorporates the prior allegations, and proceeds to allege the duties of Kateb as that of an “employee” based on alleged control exercised by the corporate entity over the services rendered. [First Amend. Cross-Comp., ¶¶ 80-81.] Other than the single conclusion, the operative cross-complaint lacks any specific facts supporting an employment relationship, especially overcoming the repeatedly alleged “consulting” agreement. The court declines to consider any extrinsic inference, or make any determination of a sham pleading. The demurrer is sustained.

7^th Cause of Action: Wrongful Constructive Termination

Cross-Defendants both challenge the claim based on the lack of a valid employment relationship allegation, as well as the failure to allege facts supporting either a claim for constructive discharge or discharge in violation of public policy. Kateb maintains the claim is properly pled.

Consistent with the retaliation claim, the court finds no underlying employment relationship pled, and therefore declines to examine the merits of the claim based on alleged conduct of cross-defendants. (Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238, 1246-1247; Colores v. Board of Trustees (2003) 105 Cal.App.4th 1293, 1305.) The demurrer is sustained.

9^th Cause of Action: Intentional Infliction of Emotional Distress

Cross-Defendants argue that the conduct described in the operative cross-complaint lacks support of intentional conduct. Cross-Defendants conclude with a single sentence argument that workers’ compensation otherwise precludes the claim, if Kateb is an employee. Kateb in opposition counters that the described conduct sufficiently articulates emotional distress, and denies workers’ compensation preclusion.

“‘[T]o state a cause of action for intentional infliction of emotional distress a plaintiff must show: (1) outrageous conduct by the defendant; (2) the defendant's intention of causing or reckless disregard of the probability of causing emotional distress; (3) the plaintiff's suffering severe or extreme emotional distress; and (4) actual and proximate causation of the emotional distress by the defendant's outrageous conduct.’ [Citation.] ‘Conduct, to be “‘outrageous’” must be so extreme as to exceed all bounds of that usually tolerated in a civilized society.’ [Citation.] In order to avoid a demurrer, the plaintiff must allege with ‘great [ ] specificity’ the acts which he or she believes are so extreme as to exceed all bounds of that usually tolerated in a civilized community. [Citation.]’” (Yau v. Santa Margarita Ford, Inc. (2014) 229 Cal.App.4th 144, 160–161.)

All parties focus on paragraph 112, which alleges a hostile work environment caused by “shouting and demeaning” comments from Taheri. While the content of the statements are not specified, the court finds paragraph 112 sufficiently alleges a basis for the claim. The demurrer is overruled.

10^th Cause of Action: Negligent Infliction of Emotional Distress

Cross-Defendants challenge the subject claim on grounds that Kateb fails to allege a basis of duty. Kateb in opposition alleges a basis of duty via the employment relationship.

Kateb apparently concedes that the fifth cause of action for negligence in no way tethers the subject cause of action. “[U]nless the defendant has assumed a duty to plaintiff in which the emotional condition of the plaintiff is an object, recovery is available only if the emotional distress arises out of the defendant's breach of some other legal duty and the emotional distress is proximately caused by that breach of duty. Even then, with rare exceptions, a breach of the duty must threaten physical injury, not simply damage to property or financial interests.” (Potter v. Firestone Tire & Rubber Co. (1993) 6 Cal.4th 965, 985.)

As addressed above, the court finds no basis for an employment relationship. The court otherwise finds no independent basis of duty, as alleged in the operative pleading. The demurrer is sustained.

In summary, the court sustains the demurrer to the Breach of Fiduciary Duty–Duty of Loyalty

Breach of Fiduciary Duty – Duty of Care, Breach of Fiduciary Duty – Duty of Care, Retaliation in Violation of Labor Code section 1102.5, Wrongful Constructive Termination, and Negligent Infliction of Emotional Distress causes of action, and overrules the demurrer to the Intentional Infliction of Emotional Distress cause of action. While the court deferred consideration of any sham pleading arguments for this demurrer, the court may consider such arguments in a subsequent demurrer on the derivative and direct liability claims.

Kateb is granted 30 days leave to amend. Kateb may not add any new causes of action without leave of court, but may add facts to all returning causes of action. (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) If Kateb fails to timely file an amended cross-complaint, cross-defendants are ordered to answer the remaining claims upon the lapse of the amendment deadline. If Kateb adds any new claims without leave of court, cross-defendants may bring a motion to strike on these items.

Kateb to give notice.