Judge Teresa A. Beaudet, Case Number: 21STCV47554, Date: 2023-08-17 Tentative Ruling

Plaintiff Wave Investment, LLC (“Plaintiff”) filed this action on December 30, 2021 against Defendants SecurCapital Corp. (“SecurCapital”) and Stephen J. Russell (“Russell”) (jointly, “Defendants”)

Plaintiff filed the operative Third Amended Complaint (“TAC”) on November 15, 2023 alleging causes of action for (1) breach of contract, (2) declaratory relief, (3) breach of partnership or joint venture agreement, (4) breach of fiduciary duty, (5) conversion,

(6) fraudulent concealment, (7) fraudulent misrepresentation, (8) negligent misrepresentation,

In the TAC, Plaintiff alleges, inter alia, that “[t]his action arises from Defendants’ theft of business and investment opportunities in violation of the law and the Parties’ agreements…The primary opportunity was the acquisition of Breakout Capital (‘Breakout’), a small business lender.” (TAC, ¶¶ 1-2.) “[Plaintiff] identified SecurCapital and Russell as potential investors. [Plaintiff] discussed the opportunity with Defendants, and the parties decided to move forward.” (TAC, ¶ 2.) Plaintiff alleges that “[t]o protect itself and to ensure it would be fully compensated for its efforts, [Plaintiff] entered into a Non-Circumvention Agreement that prohibited Defendants from acquiring any assets of Breakout or otherwise investing in the company without [Plaintiff’s] prior written approval.” (TAC, ¶ 3.)

Plaintiff alleges that “[a]fter signing the Non-Circumvention Agreement and agreeing to be bound thereby, Russell, individually and on behalf of SecurCapital, went behind [Plaintiff’s] back and acquired the assets of Breakout without notice to, or approval from, [Plaintiff]. In doing so, Defendants lied to [Plaintiff] to conceal their plan and negotiations with Breakout to prevent [Plaintiff] from exercising its contractual right to block the deal.” (TAC, ¶ 5.) Plaintiff “seeks to recover its lost profits and other economic injury from the loss of this opportunity, compensation for its substantial work, disgorgement of the benefits Defendants unjustly received, and all related damages it suffered from Defendants’ wrongful conduct.” (TAC, ¶ 6.)

Russell now demurs to the first cause of action of the TAC. In addition, Defendants move to strike portions of the TAC. Plaintiff opposes the demurrer and motion to strike.

The Court grants Russell’s request for judicial notice filed in support of Russell’s demurrer.

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

B. First Cause of Action for Breach of Non-Circumvention Agreement as to Russell

In the first cause of action for Breach of Non-Circumvention Agreement, Plaintiff alleges that “[o]n or about April 8, 2019, Defendants entered into the Non-Circumvention Agreement with [Plaintiff], a valid and binding written agreement.” (TAC, ¶ 48.) Plaintiff alleges that “[p]ursuant to the Non-Circumvention Agreement, Defendants agreed not to close any kind of transaction with Breakout without [Plaintiff’s] express prior written agreement. Therefore, [Plaintiff] had the right and discretion to preclude any transaction between Defendants and Breakout. The purpose and effect of the Non-Circumvention Agreement was to preserve and protect [Plaintiff’s] right to purchase Breakout and prevent Defendants from circumventing [Plaintiff] to cut it out of the deal.” (TAC, ¶ 50.)

Plaintiff alleges that “Defendants usurped [Plaintiff’s] right to acquire Breakout by Russell causing SecurCapital to acquire the assets of Breakout without the consent or involvement of [Plaintiff], materially breaching the Non-Circumvention Agreement.” (TAC, ¶ 51.) Plaintiff alleges that “[s]pecifically, Defendants materially breached the Non-Circumvention Agreement by the following wrongful acts: a. Defendants engaged in direct, secret contacts with Breakout without disclosing such contacts to or obtaining approval from [Plaintiff]; and b. Defendants entered into transactions to acquire Breakout without [Plaintiff’s] participation or prior written approval. c. SecurCapital obtained an equity stake in BHI and Russell obtained a seat on its Board of Directors, without [Plaintiff’s] participation or prior written approval.” (TAC, ¶ 51.)

In the demurrer, Russell asserts that he is not a party to the Non-Circumvention Agreement. As an initial matter, Russell argues that “[t]he TAC fails to state a cause of action against Russell, SecurCapital’s CEO, individually, because, as the Court held in its ruling on Defendants’ Motion for Judgment on the Pleadings, Russell is not a party to the NCA and Russell did not engage in conduct that breached the NCA.” (Demurrer at p. 7:7-10.) But as noted by Plaintiff, the Court did not rule that “Russell is not a party to the NCA,” as Russell contends in the instant demurrer. (Demurrer at p. 7:9.)

Defendants previously filed a motion for judgment on the pleadings as to Plaintiff’s Second Amended Complaint. On November 13, 2023, the Cout issued a minute order providing, inter alia, that “[t]he Court grants Defendants’ motion as to the first cause of action, solely as to Russell, with leave to amend. Defendants’ motion is otherwise denied.” (November 13, 2023 Minute Order at p. 14.) In the motion for judgment on the pleadings, Defendants also argued that “Russell is not a party to the Non-Circumvention Agreement.” (November 13, 2023 Minute Order at p. 11.) Plaintiff argued in the opposition that “Defendants’ argument as to the first cause of action is an untimely and improper motion for reconsideration of the Court’s demurrer ruling.” (Id. at p. 12.) In the November 13, 2023 minute order, the Court noted as follows:

“[I]n the reply, Defendants cite to Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, superseded by statute on other grounds as stated in Hart v. TWC Prod. & Tech. LLC (N.D.Cal. 2021) 526 F.Supp.3d 592. The Ion Court noted that ‘[a] motion for judgment on the pleadings may be made at any time either prior to the trial or at the trial itself…The motion may be made even when a general demurrer has been previously overruled. The interests of all parties are advanced by avoiding a trial and reversal for defect in pleadings. The objecting party is acting properly in raising the point at his first opportunity, by general demurrer. If the demurrer is erroneously overruled, he is acting properly in raising the point again, at his next opportunity. If the trial judge made the former ruling himself, he is not bound by it.’ (Id. at p. 877.) Defendants note that the Court’s November 4, 2022 Order does not address Defendants’ specific arguments in the instant motion concerning the signature block of the NCA.” (November 13, 2023 Minute Order at p at p. 13.)

However, the Court also found that “as already discussed in the Court’s November 4, 2022 Order, the NCA states that it ‘is entered into as of this 3rd day of March, 2019, and is by and between Stephen J. Russell, CEO SecurCapital including officers, directors, shareholders, agents, employees, consultants, attorneys and affiliates (all known as Presentee) and Mark Boyce, Wave Investments (all known as Presentor).’ (FAC, ¶ 20, Ex. A, Emphasis added.) As noted by Plaintiff, ‘Defendants cite cases relating to the signature block, but no cases where the preamble specifically names the signatory as a party to the Agreement.’ (Opp’n at p. 20:4-5, emphasis omitted.)” (November 13, 2023 Minute Order at p. 12, underline added.)

Defendants also raised another argument in their motion for judgment on the pleadings as to the first cause of action. The November 13, 2023 minute order provides, “[a]s noted by Defendants in the reply, Plaintiff does not appear to respond to Defendants’ argument that the first cause of action for breach of contract is based on SecurCapital’s actions, not Russell’s.” (November 13, 2023 Minute Order at p. 11.)

As discussed, in the instant demurrer, Russell again argues that “Russell is not a party to the Non-Circumvention Agreement.” (Demurrer at p. 8:10.) In the opposition, Plaintiff argues that the demurrer is an untimely motion for reconsideration. But in the demurrer, Russell cites to Carlton v. Dr. Pepper Snapple Group, Inc. (2014) 228 Cal.App.4th 1200, 1211, where the Court of Appeal held that “[t]he Sixth District Court of Appeal has also concluded, [A] party is within its rights to successively demur to a cause of action in an amended pleading notwithstanding a prior unsuccessful demurrer to that same cause of action.” (Internal quotations omitted.) Thus, the Court will consider Russell’s argument in the instant demurrer that he is “not a party to the non-circumvention agreement.” (Demurrer at p. 8:10.)

Russell cites to Carlesimo v. Schwebel (1948) 87 Cal.App.2d 482, 487, where the Court of Appeal noted that “[i]n the present case, had Schwebel appended the preposition ‘by’ immediately before his signature, there would be no doubt at all that the contract would have disclosed, on its face, not only that appellant was dealing with the corporation, but that Schwebel was signing as an agent and not as a principal. Where that appears on the face of the contract the corporation is liable and the agent is not. But, says appellant, the word ‘by’ does not appear in this signature, and therefore Schwebel must be conclusively presumed to have signed in his individual capacity, even though the evidence is susceptible of the interpretation that Schwebel signed as an agent.” (Internal citations omitted.)

Russell again asserts that here, “Russell’s signature appears on the contract next to ‘By.’ His name is written under the signature line with ‘CEO,’ and below his signature is the name and address of the corporation. Clearly, Russell signed on behalf of the corporation, and, thus, he is not personally liable for breach of contract. The language in the preamble does not compel any other conclusion.” (Demurrer at p. 8:23-26.) Russell also argues that “even if the preamble did include Russell, individually, he is indisputably not a signatory to the contract, as he did not execute the agreement in his individual capacity.” (Demurrer at p. 9:11-12.) But as discussed in the Court’s November 4, 2022 Order and November 13, 2023 minute order, the Non-Circumvention Agreement states that it “is entered into as of this 3rd day of March, 2019, and is by and between Stephen J. Russell, CEO SecurCapital including officers, directors, shareholders, agents, employees, consultants, attorneys and affiliates (all known as Presentee) and Mark Boyce, Wave Investments (all known as Presentor).” (TAC, ¶ 21, Ex. A, emphasis added.) As noted by Plaintiff, Russell “has still not identified any cases where the preamble specifically names the signatory as a party to the Agreement.” (Opp’n at pp. 7:24-8:1, emphasis omitted.)

Russell also asserts that “[i]f Russell was signing as an individual, the remaining language of the sentence would be nonsensical, as Russell does not personally have officers, directors, and shareholders.” (Demurrer at p. 9:5-6.) Plaintiff argues that “such language…is reasonably read as applying to SecurCapital.” (Opp’n at p. 8:6.) Moreover, as discussed, the Non-Circumvention Agreement clearly states that it “is entered into as of this 3rd day of March, 2019, and is by and between Stephen J. Russell, CEO SecurCapital including officers, directors, shareholders, agents, employees, consultants, attorneys and affiliates (all known as Presentee) and Mark Boyce, Wave Investments (all known as Presentor).” (TAC, ¶ 21, Ex. A, emphasis added.)

Russell also argues that “[t]he other exhibits attached to the TAC, including the Term Sheet (Exh. B), Side Letter (Exh. C), and the Standstill Agreement (Exh. D), similarly identify SecurCapital, not Russell individually, as the party.” (Demurrer at p. 9:25-27.) But the Court does not see how these exhibits are relevant, as the first cause of action is for breach of the

Based on the foregoing, the Court does not find that Russell has shown that he is not a party to the alleged Non-Circumvention Agreement. The Court finds that Plaintiff has adequately alleged that Russell is a party to the Non-Circumvention Agreement.

Russell also argues that “[t]o the extent [Plaintiff’s] new allegations state Russell negotiated or closed the transaction in his individual capacity, they should be disregarded by the Court as a sham pleading asserted solely to evade the Court’s November 13, 2023 order granting judgment on the pleadings for Russell.” (Demurrer at p. 7:12-15.) Russell notes that “[u]nder the sham pleading doctrine, a plaintiff cannot avoid allegations that are determinative to a cause of action simply by filing an amended complaint which omits the problematic facts or pleads facts inconsistent with those alleged in the original complaint. The doctrine precludes a plaintiff from amending a complaint to omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers. Instead, the plaintiff must satisfactorily explain such an omission. Failure to provide such an explanation allows the court to disregard the inconsistent allegations and read into the amended complaint the allegations of the superseded complaint. (Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1248.)

Russell argues that “[t]o attempt to pin individual liability on Russell, in the TAC, Plaintiff revises heading ‘E’ and other instances where its Complaint, FAC and SAC identified SecurCapital as the only breaching party, to either state ‘Defendants’ collectively or to add an allegation of Russell’s individual involvement…These changes, which contradict prior allegations, were made solely to avoid the effect of the November 13, 2023 Order Granting Judgment on the Pleadings for Russell.” (Demurrer at p. 13:14-20.)

Russell points to “Heading A” of the TAC, which alleges “A. Introduction to Defendants and the Non-Circumvention Agreement.” (TAC, p. 5:8.) “Heading A” of the Second Amended Complaint (“SAC”) alleges “A. Introduction to SecurCapital and the Non-Circumvention Agreement.” (SAC, p. 5:1.) Rusell also points to “Heading E” of the TAC, which alleges that “E. Defendants Cut Wave Out of the Deal.” (TAC, p. 9:28.) “Heading E” of the SAC alleges “E. SecurCapital Cuts Wave Out of the Deal.” (SAC, p. 9:14.)

In the opposition, Plaintiff asserts that “the TAC is not a ‘sham pleading’ because it clarified in response to the Court’s MJOP Order that it was Russell – opposed to some other person – that directed his entity’s breach of the non-circumvention agreement.” (Opp’n at p. 8:7-10.) The Court’s November 13, 2023 minute order provides, inter alia, as follows:

“Defendants assert that “Plaintiff’s allegations throughout the SAC make clear that its claim for breach of the Non-Circumvention Agreement is based on SecurCapital’s actions, not Russell’s.” (Mot. at p. 18:20-21.) Defendants note that the SAC alleges, inter alia, that ‘[Plaintiff], SecurCapital, and Breakout negotiated the outlines of an investment transaction whereby [Plaintiff] and SecurCapital, as co-investors, would invest approximately $3,000,000 as operating capital of a newly-formed company…which would purchase the assets of Breakout.’ (SAC, ¶ 24.) Plaintiff notes Heading ‘E’ on page 9 of the SAC alleges ‘SecurCapital Cuts Wave Out of the Deal,’ and that paragraph 40 of the SAC alleges that ‘SecurCapital unilaterally closed a deal to purchase the assets of Breakout through BHI.’” (November 13, 2023 Minute Order at pp. 10-11.)

In the opposition, Plaintiff notes that “[u]nder the sham pleading doctrine, allegations in an original pleading that rendered it vulnerable to demurrer or other attack cannot simply be omitted without explanation.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 751.) Plaintiff asserts that “[t]hat is not what [Plaintiff’s] TAC does. For example, [Plaintiff] did not allege in the SAC that someone other than Russell at SecurCapital committed the breaches, and now allege in the TAC that it was Russell. Rather, the TAC makes explicit what is so obvious that even Russell admits it: SecurCapital is an entity and ‘can act only through’ a person, and that person has always been Russell…There is nothing ‘inconsistent’ here.” (Opp’n at p. 8:24-28.)[1] The Court agrees that Russell has not identified inconsistent allegations in the TAC.

Russell also asserts in the demurrer that “[i]n every prior version of the pleading, SecurCapital was alleged to be the only party closing the BHI deal, failing to seek Wave’s consent, failing to return $100,000 to Wave, and using the $100,000 in the BHI deal. (RJN Exh. 3, SAC ¶¶ 43-44) Now, almost two years after filing the action and after judgment on the pleadings was entered against Wave, Wave contends that Russell individually jointly closed the BHI deal with Wave, failed to return $100,000 to Wave, and used the $100,000 in the BHI deal.” (Demurrer at p. 14:21-27.) But in support of this assertion, Russell cites to paragraphs 43 and 44 of the SAC, which allege that “[o]n or about April 8, 2019, Defendants entered into the Non-Circumvention Agreement with [Plaintiff], a valid and binding written agreement,” and that “[Plaintiff] has performed all conditions, covenants, and promises required on its part to be performed under the terms of the Non-Circumvention Agreement, including introducing Defendants to Breakout for the opportunity of a transaction.” (SAC, ¶¶ 43, 44, emphasis added.)[2]

Russell also argues that “[t]hese new allegations directly contradict the other new allegation at Paragraph 45 of the TAC…” (Demurrer at p. 14:27-28.) Paragraph 45 of the TAC alleges that “Defendants, having cut [Plaintiff] out of the deal, acquired an equity stake in BHI and Russell was awarded a seat on the Board of Directors of BHI. The equity stake was held by SecurCapital while Russell personally occupied the Board seat.” (TAC, ¶ 45.) The Court does not see how this allegation contradicts those in paragraphs 43 and 44 of the SAC.

Based on the foregoing, the Court does not find that Russell has shown that the new allegations in the TAC are a sham pleading.

Russell also asserts in the demurrer that his “seat on the BHI Board does not support a breach of contract claim.” (Demurrer at p. 15:11-12.) As set forth above, in the first cause of action of the TAC, Plaintiff alleges that “Defendants materially breached the Non-Circumvention Agreement by the following wrongful acts: a. Defendants engaged in direct, secret contacts with Breakout without disclosing such contacts to or obtaining approval from [Plaintiff]; and b. Defendants entered into transactions to acquire Breakout without [Plaintiff’s] participation or prior written approval. c. SecurCapital obtained an equity stake in BHI and Russell obtained a seat on its Board of Directors, without [Plaintiff’s] participation or prior written approval.” (TAC, ¶ 51, emphasis added.)

In the demurrer, Russell asserts, inter alia, that “the cause of action fails as against Russell because Plaintiff does not allege any damage based on Russell’s obtaining a BHI Board seat.” (Demurrer at p. 15:19-21.) Plaintiff does not appear to directly address this point in the opposition. Rusell notes that Plaintiff alleges that “[a]s a direct and proximate result of the breaches by Defendants of the Non-Circumvention Agreement, [Plaintiff] has suffered damages including the loss of the equity ownership position in BHI as contemplated by the parties’ written agreements and any potential profit arising from such equity ownership.” (TAC, ¶ 53.)

However, the Court notes that with respect to Russell’s challenge to the allegation set forth in paragraph 51(c) of the TAC, “¿a demurrer cannot rightfully be sustained to part of a cause of action...¿” (¿Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047¿; ¿see also PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682 [“A demurrer does not lie to a portion of a cause of action.”]¿.) In addition to paragraph 51(c), Plaintiff also alleges that “Defendants materially breached the Non-Circumvention Agreement by the following wrongful acts: a. Defendants engaged in direct, secret contacts with Breakout without disclosing such contacts to or obtaining approval from [Plaintiff]; and b. Defendants entered into transactions to acquire Breakout without [Plaintiff’s] participation or prior written approval…” (TAC, ¶ 51(a)-(b).)

Based on the foregoing, the Court does not find that Russell has shown that the first cause of action fails to state a cause of action against Russell. Thus, the Court overrules the demurrer to

A court may strike any “irrelevant, false, or improper matter¿inserted in any pleading¿” or any part of a pleading “¿not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.¿” (Code Civ. Proc., § 436¿¿.) “¿The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.¿” (¿Code Civ. Proc., § 437¿.) Here, Defendants move to strike paragraphs 13 and 54 of the TAC.

Defendants first address paragraph 54 of the TAC, which is contained in the first cause of action for breach of Non-Circumvention Agreement. Paragraph 54 alleges that “[i]n the alternative, [Plaintiff] is entitled to disgorge Defendants’ profits. Defendants were unjustly enriched in at least the following ways and in an amount to be proven at trial: (1) Defendants acquired Breakout on their own and have retained all the profit for themselves; and (2) Defendants took advantage of all of [Plaintiff’s] confidential information, knowledge, and efforts— e.g., including the investment and acquisition opportunities with Breakout, knowledge on Breakout’s fundamentals and history of doing business, and effort in negotiating and moving towards a potential deal with Breakout—at no cost to Defendants.” (TAC, ¶ 54.)

Defendants assert that paragraph 54 of the TAC should be stricken because disgorgement of profits is not an appropriate remedy for breach of contract. Defendants cite to Civil Code section 3300, which provides that “[f]or the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.” Defendants also note that “[c]ontract damages seek to approximate the agreed-upon performance.” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515.)

In the opposition, Plaintiff asserts that “disgorgement is a proper remedy for breach of contract, where, as here, compensatory damages are inadequate to protect the benefit of the

Plaintiff’s bargain.” (Opp’n at p. 4:15-17.) Plaintiff cites to Ajaxo Inc. v. E*Trade Group Inc. (2005) 135 Cal.App.4th 21, 56, where the Court of Appeal noted that “[i]n this case, we must draw the distinction between damages and restitution. When the remedy given for breach of contract is money damages, the amount awarded is determined with the purpose of putting the injured party in as good a position as he would have occupied had the contract been performed. In granting restitution as a remedy for the breach, however, the purpose to be attained may be no more than the restoration of the injured party to as good a position as that occupied by him before the contract was made…The remedy of restitution differs from the remedy in damages in that in awarding damages the purpose is to put the injured party in as good a position as he would have occupied, had the contract been fully performed, while in enforcing restitution, the purpose is to require the wrongdoer to restore what he has received and thus tend to put the injured party in as good a position as that occupied by him before the contract was made. Ordinarily, restitution requires that the defendant shall give something back to the plaintiff; and it may be supposed that the defendant cannot do this unless he has received something of value at the plaintiff’s hands.” (Internal quotations omitted.)[3]

In Ajaxo, “a jury found that E*Trade Group Inc. (E*Trade) had breached a mutual nondisclosure agreement it had with Ajaxo Inc. (Ajaxo) by disclosing protected information to Everypath Inc. (Everypath).” (Ajaxo Inc. v. E*Trade Group Inc., supra, 135 Cal.App.4th at p. 25.) The Court of Appeal “conclude[d] that restitution requires the return to Ajaxo of ‘value’ or ‘benefit’ that E*Trade received. Here, assuming that E*Trade had performed on the NDA, i.e., had kept Ajaxo’s trade secrets and proprietary information confidential, Ajaxo would have been in exactly the same position before it entered into the NDA as it would have been after negotiations broke down, except it would have kept its trade secrets and proprietary information away from Everypath. Ajaxo conferred a benefit on E*Trade by giving E*Trade Ajaxo’s trade secrets and proprietary information because, ultimately, E*Trade received technology from Everypath that helped to keep it competitive. Thus, E*Trade was benefited by breaching the NDA. Accordingly, Ajaxo must be ‘compensated’ for E*Trade’s breach of the NDA, i.e., by E*Trade disgorging its unjust enrichment.” (Id. at pp. 56-57.)

Plaintiff contends in the opposition that “[i]n cases of opportunistic breaches like this one, where a deliberate breach of contract results in profit to the defaulting party, only restitution of the profit realized by the breaching party can provide inadequate [sic] protection to the non-breaching party’s contractual entitlement.” (Opp’n at p. 5:12-15.)

Defendants assert that Ajaxo is distinguishable. As set forth above, the Ajaxo Court found that “E*Trade was benefited by breaching the NDA. Accordingly, Ajaxo must be ‘compensated’ for E*Trade’s breach of the NDA, i.e., by E*Trade disgorging its unjust enrichment.” (Ajaxo Inc. v. E*Trade Group Inc., supra, 135 Cal.App.4th at p. 57.) As noted by Defendants, the Ajaxo Court then noted that “[p]aragraph five of the NDA specifically allows for an equitable remedy in addition to ‘whatever remedies it might have at law.’” (Id. at p. 57, fn. 33.) In the motion, Defendants assert that “[t]he Ajaxo court additionally found it significant that the NDA at issue there ‘specifically allows for an equitable remedy in addition to ‘whatever remedies it might have at law.’…The NCA contains no such provision.” (Mot. at p. 8:1-3.) Plaintiff does not appear to dispute this point in the opposition. In addition, the first cause of action does not appear to allege that any provision allowing for an equitable remedy is contained in the Non-Circumvention Agreement.

Based on the foregoing, the Court finds that Defendants have demonstrated that paragraph 54 of the TAC should be stricken.

Next, Defendants argue that paragraph 13 should be stricken. Paragraph 13 of the TAC alleges that “[Plaintiff] is informed and believes, and on that basis alleges, that the Defendants conspired together, and maliciously and willfully entered into a scheme to engage in the wrongful acts described herein. [Plaintiff] is further informed and believes, and on that basis alleges, that in pursuit of that conspiracy and scheme, each Defendant did the acts and things alleged herein, and all of such acts and things were participated in and done by each Defendant, or by any combination of them, as steps in the conspiracy and for the purpose of causing the wrongful acts described herein.” (TAC, ¶ 13.)

Defendants assert that “Plaintiff’s conspiracy allegation should be stricken because a corporation cannot conspire with its agents acting in the course of their employment.” (Mot. at p. 9:1-3.) Defendants cite to Black v. Bank of America (1994) 30 Cal.App.4th 1, 4, where the California Supreme Court noted that “[i]t has long been the rule in California that [a]gents and employees of a corporation cannot conspire with their corporate principal or employer where they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage.” (Internal quotations omitted.) The Court of Appeal in Black found that
“[a] corporation is, of course, a legal fiction that cannot act at all except through its employees and agents. When a corporate employee acts in the course of his or her employment, on behalf of the corporation, there is no entity apart from the employee with whom the employee can conspire…[I]t is basic in the law of conspiracy that you must have two persons or entities to have a conspiracy. A corporation cannot conspire with itself any more than a private individual can, and it is the general rule that the acts of the agent are the acts of the corporation…To hold that a subordinate employee of a corporation can be liable for conspiring with the corporate principal would destroy what has heretofore been the settled rule that a corporation cannot conspire with itself.” (Id. at p. 6 [internal quotations and citations omitted].)

In the TAC, Plaintiff alleges that “Russell…is the CEO of Defendant SecurCapital.” (TAC, ¶ 9.) Defendants assert that “[b]ecause Plaintiff cannot as a matter of law state a conspiracy claim between the only two named defendants in the matter, the conspiracy allegation should be stricken.” (Mot. at p. 10:1-2.)

In the opposition, Plaintiff asserts that it “has not alleged a conspiracy claim so the Court should not strike the nothingburger allegation that Defendants acted in concert.” (Opp’n at p. 6:14-15.) Defendants counter that “[a]s Plaintiff admits the conspiracy allegations of Paragraph 13 of the TAC are a ‘nothingburger,’ the Court should strike this paragraph as irrelevant.” (Reply at p. 4:18-19.) Indeed, although Plaintiff asserts that “Paragraph 13 only provides background on Russell and SecurCapital’s relationship” (Opp’n at p. 6:24-25), Plaintiff does not appear to demonstrate how such allegation is relevant to any of Plaintiff’s causes of action. As discussed, “[t]he court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc., § 436, subd. (a), emphasis added.)

Based on the foregoing, the Court finds that Defendants have demonstrated that paragraph 13 of the TAC should be stricken.

Based on the foregoing, the Court overrules Russell’s demurrer to the first cause of action of the TAC.

The Court grants Defendants’ motion to strike paragraphs 13 and 54 of the TAC, with leave to amend.

The Court orders Plaintiff to file and serve an amended complaint, if any, within 20 days of the date of this order. If no amended complaint is filed within 20 days, the Court orders Defendants to file and serve their answer to the TAC within 30 days of the date of this order.

[1]Plaintiff cites to page 16 of the demurrer, where Russell argues that “Russell taking the Board seat based on SecurCapital’s equity position is fully consistent with Russell’s status as agent of the corporation, which can act only through its employees and agents.” (Demurrer at p. 16:1-3.)

[2]The first paragraph of the SAC alleges “Plaintiff Wave Investment, LLC (‘Wave’ or ‘Plaintiff’), by its undersigned counsel, brings this action against defendants SecurCapital Corp. (‘SecurCapital’), Stephen J. Russell (‘Russell’), and DOES 1 through 10, inclusive, and each of them (together, ‘Defendants’)…” (SAC, p. 2:1-4, emphasis added.)

[3]Plaintiff also relies on Foster Poultry Farms, Inc. v. SunTrust Bank (9th Cir. 2010) 377 F.App'x 665, a non-binding federal case. Defendants also note that Foster is an unpublished opinion.

Superior Court of California

County of Los Angeles

Department 50