Judge: Teresa A. Beaudet, Case: 19STCV21850, Date: 2023-01-27 Tentative Ruling

Case Number: 19STCV21850    Hearing Date: January 27, 2023    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

Plaintiffs Richard Meng and Vivian Meng (jointly “Plaintiffs”) filed this action on June 21, 2019 against, inter alia, Defendants Leon Richard Mays (“Mays”), Michael Anthony Verdugo dba Verdugo & Associates (“Verdugo”), and Darryl Wayne Daniels (“Daniels”). 

The operative Third Amended Complaint (“TAC”) was filed on October 12, 2021. The TAC asserts causes of action for (1) intentional misrepresentation, (2) negligence, (3) fraudulent conveyance, (4) “withdrawn,” (5) violation of Business and Professions Code section 7160, (6) aiding and abetting unlicensed contracting, (7) conversion, (8) unjust enrichment, and (9) rescission. In the TAC, Plaintiffs allege that this action arises out of a fraudulent scheme based on a construction renovation project conducted by Mays and Daniels. (TAC, ¶ 1.)

Plaintiffs now move for leave to file a Fourth Amended Complaint. Verdugo and Mays oppose.[1]

Discussion

Pursuant to Code of Civil Procedure section 473, subdivision (a)(1), “[t]he court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading.”  Amendment may be allowed at any time before or after commencement of trial. (Code Civ. Proc., § 576.) “[T]he court’s discretion will usually be exercised liberally to permit amendment of the pleadings. The policy favoring amendment is so strong that it is a rare case in which denial of leave to amend can be justified.” (Howard v. County of San Diego (2010) 184 Cal.App.4th 1422, 1428 [internal citations omitted].) “If the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend….”  (Morgan v. Sup. Ct. (1959) 172 Cal.App.2d 527, 530.) Prejudice includes “delay in trial, loss of critical evidence, or added costs of preparation.” (Solit v. Tokai Bank, Ltd. New York Branch (1999) 68 Cal.App.4th 1435, 1448.)

A motion to amend a pleading before trial must include a copy of the proposed amendment or amended pleading, which must be serially numbered to differentiate it from previous pleadings or amendments. (Cal. Rules of Court, rule 3.1324(a).) The motion must also state what allegations are proposed to be deleted or added, by page, paragraph, and line number.  (Cal. Rules of Court, rule 3.1324(a).) Finally, a separate supporting declaration specifying the effect of the amendment, why the amendment is necessary and proper, when the facts giving rise to the amended allegations were discovered, and the reason why the request for amendment was not made earlier must also accompany the motion. (Cal. Rules of Court, rule 3.134(b).)

The Court finds that Plaintiffs have complied with the procedural requirements for amending pleadings. Plaintiffs submit a declaration from their counsel that attaches a copy of the proposed Fourth Amended Complaint. (Lee Decl., ¶ 9, Ex. C.)

Plaintiffs indicate that on December 16, 2022, the United States Bankruptcy Court issued a Judgment Revoking Discharge in Case No.: 6:19-bk-16968-WJ, which concerns Mays and Daniels. (Lee Decl., ¶ 7, Ex. A.) The Judgment provides, inter alia, that “[t]he Court enters judgment in favor of the plaintiff and against the defendants with respect to the cause of action arising under 11 U.S.C. § 727(d)(2) and the cause of action arising under 11 U.S.C. § 727(d)(3). Based thereon, the discharge of the debtors, Leon Richard Mays and Darryl W. Daniels, is hereby revoked in their bankruptcy case.”

Plaintiffs indicate that “[i]n light of the Judgment revoking discharge,” they seek to “revive two legal claims for: (i) Violation of Business and Profession Code Sections 7160; and (ii) Breach of Fiduciary Duty, both of which were withdrawn to comply with the now-revoked discharge order.” (Mot. at p. 3:26-4:1.) Plaintiffs assert that “[t]he proposed amendment is necessary and proper in light of the United States Bankruptcy Court 12-16-2022 Judgment revoking MAYS and DANIELS’ bankruptcy discharge. In this, the proposed two causes of action are part of Plaintiffs’ previous pleadings and were withdrawn to comply [sic] the now-revoked discharge. For the same reason, the proposed amendment contains no new factual allegation in that they were the same claims asserted against MAYS and DANIELS and their entities. The proposed amendment could not be made earlier because the Judgment to Revoke Discharge was not issued by the bankruptcy court until recently on December 16, 2022.” (Lee Decl., ¶ 3.)[2]

As an initial matter, the Court notes that the TAC already contains a cause of action for Violation of Business and Professions Code section 7160. Thus, it is unclear why it is necessary to amend the TAC to add such a cause of action. However, the new tenth cause of action set forth in the proposed Fourth Amended Complaint is for “Disgorgement under Business and Professions Code section 7031,” (Lee Decl., ¶ 9, Ex. C, emphasis added) so it appears Plaintiffs intended to refer to this cause of action in the instant motion. Moreover, Plaintiffs’ counsel indicates in his declaration that “[i]n February 2021…Plaintiffs filed an amendment to comply with the discharge order. In the amendment, Plaintiffs’ 9th Cause of Action for violation of Business and Profession Code Sections 7160 & 7031 was amended to Violation of Business and Profession Code Sections 7160.” (Lee Decl., ¶ 2.)

In his opposition, Verdugo argues that the causes of action alleged against him in this action are without merit. Verdugo asserts that “[t]he Court should not allow Plaintiffs to file yet-another complaint which purports to allege any cause of action against Michael Verdugo and/or Verdugo & Associates unless Plaintiffs plead specific material facts establishing the essential elements of any such cause of action.” (Verdugo Opp’n at p. 7:1-5.) But as noted by Plaintiffs, the new tenth and eleventh causes of action in the proposed Fourth Amended Complaint are not alleged against Verdugo. The Court does not see how Verdugo’s arguments pertaining to other causes of action are relevant here.

Mays asserts in his opposition that “Plaintiffs are now attempting to amend their complaint to include…known falsehoods in Plaintiff’s proposed amendment…” (Mays Opp’n at p. 6:18-19.) Mays also asserts that the proposed eleventh cause for breach of fiduciary duty has statute of limitations issues and other deficiencies. But the asserted legal deficiency of the proposed amendment does not warrant denial of leave to amend. (¿See Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048 [“the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer, motion for judgment on the pleadings or other appropriate proceedings”]¿.) In addition, neither Mays nor Verdugo assert that they would be prejudiced by the proposed amendments.

In light of the foregoing, the Court finds that Plaintiffs have demonstrated good cause to file the Fourth Amended Complaint.

Conclusion

Based on the foregoing, Plaintiffs’ motion is granted.

The Court orders Plaintiffs to file and serve their Fourth Amended Complaint within three days of the date of this order.

Plaintiffs are ordered to give notice of this order.

DATED:  January 27, 2023                            ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court