Judge: Teresa A. Beaudet, Case: 222STCV09612, Date: 2022-08-29 Tentative Ruling

Case Number: 222STCV09612    Hearing Date: August 29, 2022    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

On March 18, 2022, Plaintiff Gary Huerta (“Plaintiff”) filed this action against Defendants Michael Simms (“Simms”), Carmen Santillan (“Santillan”), Plant Ranch, Inc. (“Plant Ranch”), and Cena Kitchen, LLC. Plaintiff filed the operative First Amended Complaint (“FAC”) on May 9, 2022. The FAC alleges causes of action for (1) appointment of a receiver, (2) constructive fraud, (3) accounting, (4) conversion, (5) breach of the operating agreement, (6) breach of fiduciary duty, (7) unjust enrichment, (8) declaratory relief, and (9) dissolution.   

Simms and Santillan (jointly, “Defendants”) demur to the first and seventh causes of action of the FAC on the ground that these causes of action fail to state facts sufficient to constitute a cause of action. Defendants also move to strike portions of the FAC. Plaintiff opposes the demurrer and motion to strike.

Demurrer

Legal Standard

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.)  

Allegations of the FAC

Plaintiff alleges that Plant Ranch was formed as a California limited liability company in April of 2016 with Plaintiff, Santillan, and Simms each owning 1/3 of the company. (FAC, ¶ 10.)  Originally named Cena Vegan, the business was formed to become a wholesale distributor of plant-based proteins, specifically those with authentic Mexican flavors. (FAC, ¶ 10.) The business began selling its products via a Taco cart on the streets of Los Angeles. (FAC, ¶ 10.)

The business was split into two entities in July of 2019. (FAC, ¶ 11.) Cena Vegan was renamed Plant Ranch, Inc. and a new company, Cena Kitchen, LLC (“Cena Kitchen”), was formed. (FAC, ¶ 11.) This was done to ensure that products developed, marketed, and sold from 2016 would remain the intellectual property of Plant Ranch, whose business would continue as a wholesaler and manufacturer of plant-based proteins. (FAC, ¶ 11.) Cena Kitchen, newly formed, would continue as a restaurant and catering business doing business as Cena Vegan, in order to continue serving customers with a name and brand they were familiar with. (FAC, ¶ 11.)

In March of 2021, Plaintiff stepped down in his management role at Cena Kitchen to focus fulltime as the CEO of Plant Ranch. (FAC, ¶ 15.) On December 20, 2021, Plaintiff negotiated a $400,000 investment for Plant Ranch and an additional $100,000. (FAC, ¶ 21.) The investors requested that two additional seats be added to the Plant Ranch board and stated that this was a necessary step prior to providing any funding. (FAC, ¶ 21.) On December 20, 2021, Plaintiff informed Defendants about the investment money Plant Ranch would soon have provided the owners were able to meet the investors’ requests. (FAC, ¶ 22.)

On December 23, 2021, a shareholders meeting was conducted. (FAC, ¶ 23.) It was at this time that Defendants stated that Plaintiff was suspended as the CEO for a period of 30 days. (FAC, ¶ 23.) The reasons given for the suspension were: (1) Plaintiff tentatively agreed with the investors’ proposal that Defendants should give back 5% of their shares for investment purposes and Plaintiff should not as he had agreed to dedicate himself fulltime to the position of CEO; and (2) Plaintiff fired corporate counsel without first consulting with Defendants. (FAC, ¶ 23.)

Plaintiff alleges Defendants have been secretly moving monies dedicated to Cena Kitchen to unidentified accounts in an effort to deprive Plaintiff of his benefits and ownership rights. (FAC, ¶ 24.) Defendants transferred $200,000 from the business account for Cena Kitchen, and opened a bank account with a Statement of Information filed with the Secretary of State of California on December 19, 2021 that fails to identify Plaintiff as 1/3 owner/member. (FAC, ¶ 24.) In addition, Defendants are hiding any cash revenues earned by Cena Kitchen to avoid paying a profit share to Plaintiff. (FAC, ¶ 24.) 

On or about March 1, 2022, Plaintiff learned that an application he submitted in

early December of 2021 on behalf Plant Ranch to Shark Tank was accepted. (FAC, ¶ 25.) However, Defendants refused to appear on Shark Tank, claiming Shark Tank was not a good fit for the business. (FAC, ¶ 25.) Since the suspension of Plaintiff as CEO of Plant Ranch, Defendants have taken no action to manage or oversee the operations of Plant Ranch. (FAC,       ¶ 26.) They have failed to secure any investments in the company for scale up or to meet its mounting expenses and debt. (FAC, ¶ 26.) In addition, they have yet to reach out to either potential investor or the co-manufacturer they had been working with. (FAC, ¶ 26.) Defendants further requested that Plaintiff fire their sales team despite being informed that the sales team was in negotiations with Sprouts market to have all current products in stores nationwide. (FAC, ¶ 26.) Defendants sent an email stating their intent to close Plant Ranch in order for them to gain control of the intellectual property to the determent of the company and its shareholders. (FAC,  ¶ 26.) Plaintiff brings this action based on injuries allegedly suffered to himself and to Plant Ranch and Cena Kitchen derivatively. (FAC, ¶ 27.)

First Cause of Action for Appointment of a Receiver

In support of the first cause of action for appointment of a receiver, Plaintiff seeks an order from the Court to appoint a Receiver to do a number of things. (See FAC, ¶ 31.)

Defendants assert that California law does not recognize a stand-alone cause of action for appointment of a receiver. Defendants note that “[r]eceivership is merely an ancillary remedy, and there is no such thing as an independent suit for receivership.” (Associated Creditors’ Agency v. Wong (1963) 216 Cal.App.2d 61, 66.) Defendant also cites to La Societe Francaise d'Epargnes et de Prevoyance Mutuelle v. District Court of Fifteenth Judicial Dist. (1879) 53 Cal. 495, 553, which holds that “[t]here is, of course, no such thing as an action brought distinctively for the mere appointment of a Receiver--such an appointment, when made, is ancillary to or in aid of the action brought.”

In the opposition, Plaintiff does not cite to any legal authority indicating that an independent cause of action for “appointment of a receiver” exists under California law. Rather, Plaintiff notes that “[m]istaken labels and confusion of legal theory are not fatal; if appellant’s complaint states a cause of action on any theory, he is entitled to introduce evidence thereon.” (Nguyen v. Scott (1988) 206 Cal.App.3d 725, 730.) But as Defendants note, this argument fails to address Defendants’ point that California law does not recognize a stand-alone cause of action for appointment of a receiver. 

In light of the foregoing, the Court sustains Defendants’ demurrer to the first cause of action.

Seventh Cause of Action for Unjust Enrichment

In support of the seventh cause of action for unjust enrichment, Plaintiff alleges that by their wrongful acts and omissions, Defendants were unjustly enriched at the expense and to the detriment of Plaintiff, Cena Kitchen, and Plant Ranch. (FAC, ¶ 58.)

Defendants assert that California law also does not recognize a stand-alone cause of action for unjust enrichment. “[U]njust enrichment is not a cause of action. Rather, it is a general principle underlying various doctrines and remedies, including quasi-contract.” (Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 911 [internal citations omitted].) In the opposition,

Plaintiff cites to Mohebbi v. Khazen (N.D.Cal. 2014) 50 F.Supp.3d 1234 in support of the proposition that a claim for unjust enrichment is recognized under California law. The Court notes that this federal authority is nonbinding. Plaintiff also cites to Durell v. Sharp Healthcare

 (2010) 183 Cal.App.4th 1350, but the Court of Appeal in this case found that “[t]here is no cause of action in California for unjust enrichment.” (Id. at p. 1370 [internal quotations omitted].)

            In light of the foregoing, the Court sustains Defendants’ demurrer to seventh cause of action.

Plaintiff asserts in the opposition that he can “move one or both causes of action to the remedies section of a newly filed complaint.” (Opp’n at p. 6:3-4.) Leave to amend is thus granted to allow Plaintiff an opportunity to revise the “remedies section” of Plaintiff’s FAC. Defendants argue that Plaintiff’s suggestion that he “can move one or both causes of action to the remedies section” is futile. However, Defendants fail  to cite to any legal authority or provide further analysis in support of this point.   

Motion to Strike

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.)¿Code of Civil Procedure section 436, subdivision (b) “authorizes the striking of a pleading due to improprieties in its form or in the procedures pursuant to which it was filed.” (Ferraro v. Camarlinghi (2008) 161 Cal.App.4th 509, 528 [emphasis in original].)

Defendants move to strike Plaintiff’s ninth cause of action for dissolution.[1] Defendants also move to strike the prayer for relief on the ninth cause of action for dissolution. (FAC, p. 19:10-12.) Defendants assert that Plaintiff’s cause of action for dissolution and prayer for relief should be stricken because Plaintiff failed to verify his FAC.  

Corporations Code section 1800, subdivision (a) provides in pertinent part, “[a] verified complaint for involuntary dissolution of a corporation on any one or more of the grounds specified in subdivision (b) may be filed in the superior court of the proper county by any of the following persons…” (Emphasis added, See also Weil & Brown, Cal. Practice Guide: Corporations (The Rutter Group 2022) ¶ 8:831, “[w]here the action is filed by a private party (rather than the Attorney General), a verified complaint is required. [Corps.C. § 1800(a)].” Defendants note that “[w]here verification is required, lack of verification renders the complaint subject to motion to strike…” (Weil & Brown, Cal. Practice Guide: Civ. Proc. Before Trial (The Rutter Group 2022) ¶ 6:311, emphasis omitted.)

In the opposition, Plaintiff does not dispute that his ninth cause of action for dissolution must be verified. Rather, he argues, “Plaintiff has filed a motion for judicial dissolution of Plant Ranch and Cena Kitchen which is currently set for November 10, 2022 in this department. In support of that motion for dissolution, Gary Huerta signed a declaration under the penalty of perjury which verifies the request for dissolution and the bases therefore. Defendants’ Motion to Strike is therefore form over function and should be denied.” (Opp’n at p. 3:1-5.) But as noted by Defendants, Plaintiff fails to cite any legal authority that a declaration filed in connection with a motion for dissolution satisfies the verification requirement for a complaint set forth in Corporations Code section 1800. 

Based on the foregoing, the Court grants the motion to strike in its entirety, with leave to amend. Leave to amend is granted to allow Plaintiff an opportunity to verify his complaint.    

Conclusion

Based on the foregoing, the Court sustains Defendants’ demurrer to the FAC in its entirety, with leave to amend. Leave to amend is granted to allow Plaintiff an opportunity to revise the “remedies section” of Plaintiff’s FAC. 

The Court grants Defendants’ motion to strike in its entirety, with leave to amend. Leave to amend is granted to allow Plaintiff an opportunity to verify his complaint.   

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 FAC within 30 days of the date of this order.

Defendants are ordered to give notice of this ruling.

DATED:  August 29, 2022                             ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court