Judge Theresa M. Traber, Case 22STCV21381 2023-04-12 Tentative Ruling

Judge: Theresa M. Traber, Case: 22STCV21381, Date: 2023-04-12 Tentative Ruling

Case Number: 22STCV21381 Hearing Date: April 12, 2023 Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE: April 12, 2023 TRIAL DATE: Not set

CASE: NICHOLAS LOLOEE, et al. vs CATHERINE LLAVANES, et al.

CASE NO.: 22STCV21381

(1) DEMURRER TO COMPLAINT

MOVING PARTY: Defendant Catherine Llavanes

RESPONDING PARTY(S): Plaintiffs Surgical Needs, LLC and Nicholas Loloee

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is a breach of contract action that was filed on June 30, 2022. Plaintiffs Surgical Needs, LLC (Surgical Needs) and Nicholas Loloee (Loloee) (collectively, Plaintiffs) allege Defendants Catherine Llavanes (Defendant) and Century Park Ambulatory Surgery Center, LLC (Century Park) (collectively, Defendants) breached the operating agreement with Plaintiffs regarding a $50,000 investment from Surgical Needs and a $30,000 loan from Loloee. Plaintiffs allege Defendants received and retained money and converted money stemming from the operating agreement, investment, and loan. Plaintiffs allege Defendants earned and retained money which should have been paid to Plaintiffs.

Defendant Catherine Llavanes (Defendant) demurs to the complaint.

TENTATIVE RULING:

Defendant’s demurrer to the complaint is OVERRULED in its entirety. Defendant shall file her Answer within 20 days of this Order.

DISCUSSION:

Demurrer by Catherine Llavanes

Defendant demurs to the Complaint in its entirety on the grounds that it fails to state facts sufficient to constitute a cause of action as to the six causes of action alleged against her and each cause of action is uncertain.

Legal Standard

A demurrer tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, 147 Cal.App.4th at p. 747.) The ultimate facts alleged in the complaint must be deemed true, as well as all facts that may be implied or inferred from those expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403; see also Shields v. County of San Diego (1984) 155 Cal.App.3d 103, 133 [stating, “[o]n demurrer, pleadings are read liberally and allegations contained therein are assumed to be true”].) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

Meet and Confer

The Declaration of Attorney Gregory J. Morrow reflects that the meet and confer requirement was satisfied. (CCP § 430.41.)

Analysis

Opposition

Opposition papers shall be filed with the court and served on each party at least nine court days before the hearing. (CCP § 1005(b).) A judge should exercise discretion to consider a late opposition, depending upon whether the attorney's conduct was reasonable under the circumstances. (Ambrose v. Michelin North America, Inc. (2005) 134 Cal.App.4th 1350, 1353; Luri v. Greenwald (2003) 107 Cal.App.4th 1119, 1129; Garcia v. Hejmadi (1997) 58 Cal. App. 4th 674, 684; Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1146 (A court had discretion to not consider late-filed papers where counsel provided no plausible explanation for the tardiness); Kapitanski v. Von's Grocery Co. (1983) 146 Cal.App.3d 29, 31 (requiring relief under CCP §473, as to late-filed opposition); CRC Rule 3.1300(d) (judges have discretion to consider late filed papers, and minutes or orders must indicate such decisions).)

Plaintiffs filed a late opposition to the demurrer on April 4, 2023, but Defendant filed a full reply on April 6, 2023. The Court exercises its discretion to consider Plaintiffs’ opposition to Defendant’s Demurrer because Defendant was able to submit a reply and thus, has not been prejudiced by the late filing.

Uncertainty

Defendant demurs to the Complaint in its entirety as uncertain. A demurrer for uncertainty is strictly construed, even where a pleading is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures. (See Khoury v. Maly's of California, Inc.¿(1993) 14 Cal.App.4th 612, 616.)¿ A demurrer for uncertainty will be sustained only where the pleading is so bad that defendant¿cannot reasonably respond--i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her.¿ (See Weil & Brown, Civil Procedure Before Trial (The Rutter Group) § 7:85 (emphasis in original).) "The objection of uncertainty does not go to the failure to allege sufficient facts."¿ (Brea v. McGlashan¿(1934) 3 Cal.App.2d 454, 459.)

Defendant argues that Complaint is uncertain because it is devoid of necessary facts—an argument which is expressly invalid with respect to a demurrer for uncertainty. (Brea, supra, 3 Cal.App.2d at 459.) Defendant has failed to demonstrate that the Complaint is uncertain.

First Cause of Action (Breach of Contract)

Defendant demurs to the first cause of action for breach of contract on the ground it fails to allege facts sufficient to constitute a cause of action. (CCP § 430.10(e).)

The cause of action for breach of contract requires a plaintiff plead: (1) the contract; (2) the plaintiff’s performance of the contract or excuse for nonperformance; (3) Defendant’s breach; and (4) the resulting damages. (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 458.) Further, the complaint must indicate whether the contract is written, oral, or implied by conduct. (Code Civ.Proc. § 430.10(g).) General allegations stating that defendants violated a contract are insufficient, and plaintiffs must state facts showing a breach. (Levy v. State Farm Mutual Automobile Ins. Co. (2007) 150 Cal.App.4th 1, 5-6.) For breach of a written contract, the essential terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference. (Otworth v. Southern Pac. Transportation Co., supra, 166 Cal.App.3d at 459.)

To allege alter ego, plaintiffs must plead a unity of interest and ownership such that the separate personalities of the corporation and individuals do not exist, and that an inequity will result if the corporate entity is treated as the sole actor. (Leek v. Cooper (2011) 194 Cal. App. 4th 399, 415; Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal. App. 4th 1269, 1285; Vasey v. Cal. Dance Co. (1977) 70 Cal.App.3d 742, 749; Minifie v. Rowley (1921) 187 Cal. 481, 487. “The general rule is thus stated as follows: ‘Before a corporation's acts and obligations can be legally recognized as those of a particular person, and vice versa, it must be made to appear that the corporation is not only influenced and governed by that person, but that there is such a unity of interest and ownership that the individuality, or separateness, of such person and corporation has ceased, and that the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice.’” (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825.) That said, a plaintiff need only allege ultimate facts, not evidentiary facts, and may be able to simply allege the existence of relevant factors recognized in case law. (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 236; Doe v. City of Los Angeles (2007) 42 Cal. 4th 531, 550.)

Defendant contends that Plaintiffs have failed to plead any elements of a breach of contract claim. Defendant first argues that Plaintiffs’ complaint is flawed because it does not allege the existence of a contract between them and Defendant, much less the “pertinent terms and conditions directly applicable to Defendant.” The Court disagrees. Plaintiffs allege that Surgical Needs and Century Park entered into an operating agreement, under which Plaintiff Surgical Needs obtained a 25 percent interest in Century Park, in exchange for receiving “net profit equal to the Company’s income for each fiscal year.” (Compl., at ¶ 2.) While Defendant is not identified as a signatory to the operating agreement, the Complaint sets forth sufficient allegations to support alter ego liability against Defendant. Specifically, Plaintiffs allege Defendant “possessed full control of the billing and collections” for Century Park, but failed to “adhere to standard practices of corporate governance but instead would sell accounts receivable to third parties without investors’ permission or consent, engage in collection efforts, deposit the funds and pocket the profits for herself as though this was her personal enterprise.” (Id., ¶ 7.) It is also alleged that Defendants Llavanes and Century Park “began (1) commingling funds with intent to embezzle PLAINTIFF SURGICAL NEEDS’ funds, (2) obfuscating profits by engaging in improper accounting methods, (3) selling accounts receivable to third parties at a substantial discount, and (4) refusing to provide an accounting and hiding the accounting records from PLAINTIFF SURGICAL NEEDS.” (Id., ¶ 4.) In addition, Plaintiffs assert that Defendant “collected Century Park’s receivables and then used them to compensate nurses to work for other doctors and other medical facilities” and “asked law firms representing patients to make out checks to various other entities for medical bills although they received medical services at Century Park so that she could take the money to enrich herself,” all in an effort to hide profits from Plaintiffs and deprive them of the funds to which they were entitled. (Id., ¶¶ 5-6.) These allegations are sufficient to satisfy the pleading standards for alter ego in that they demonstrate a unity of interest between Century Park and Defendant, who allegedly exercised substantial control over Century Park and used that control to spend and divert Century Park’s assets as though they were her own and to defraud Plaintiffs, such that the separate existence of the parties should be disregarded to avoid injustice.

Defendant also contests the adequacy of Plaintiffs’ allegations in support of the other elements of their contract claim. But both plaintiffs have alleged their performance in the form of payments made to Defendants. (Id., ¶¶ 1, 3.) Further, the same allegations that support Plaintiffs’ alter ego theory plainly establish the factual basis for Defendant’s breach of the contract and resulting damages to Plaintiffs. (Id., e.g., ¶¶ 3-9.)

As a final salvo, Defendant challenges Plaintiffs’ reliance on the operating agreement as contrary to the statute of frauds, as codified in Civil Code § 1624. This attack on the Complaint is curious as there are no allegations that the operating agreement is oral. Because a demurrer takes the allegations as pled and does not alter or supplement them, the Court cannot assume, as Defendant does, that Plaintiffs are relying on an oral contract. As a result, Defendant’s statute of frauds argument misses the mark and must be overruled.

The Court concludes, therefore, that Plaintiffs’ allegations are sufficient to support their cause of action against Defendant for breach of contract.

Second and Third Causes of Action (Money Had and Received)

Defendant demurs to the second and third causes of action for money had and received on the ground they fail to allege facts sufficient to constitute a cause of action. (CCP § 430.10(e).)

The cause of action for money had and received requires a plaintiff plead the defendant “is indebted to the plaintiff in a certain sum ‘for money had and received by the defendant for the use of the plaintiff.’” (Avidor v. Sutter’s Place, Inc. (2013) 212 Cal.App.4th 1439, 1454.) “The claim is viable ‘wherever one person has received money which belongs to another, and which in equity and good conscience should be paid over to the latter.’” (Ibid.)

Defendant argues that Plaintiffs’ complaint fails to state a cause of action for money had and received against her because they do not allege Defendant had or received any money for Plaintiffs’ use. Plaintiffs allege Surgical Needs invested $50,000 in Century Park and Loloee loaned Century Park $30,000, pursuant to a contractual agreement with Century Park. (Compl., ¶¶ 1 and 3.) Further, Plaintiffs allege Defendant failed to repay Surgical Needs’ investment or Loloee’s loan under the terms of the operating agreement between Surgical Needs and Century Park. (Compl., ¶¶ 40-42 and 46-48.) As with the breach of contract action discussed above, because Plaintiffs rely on a contractual agreement with Century Park, rather than Defendant, the demurrer challenges the sufficiency of any collection action against Defendant as an individual. But this argument fails if Defendant can be held liable for the money had and received as an alter ego of Century Park. As the Court has already concluded, Plaintiffs have offered sufficient allegations to support an alter ego finding to the effect that Defendant is liability for the financial failures and misconduct of Century Park.

Accordingly, Defendant’s demurrer must be overruled because Plaintiffs’ complaint states a cause of action for money had and received against Defendant based on their theory that she is the alter ego of Century Park.

Fourth and Fifth Causes of Action (Conversion)

Defendant demurs to the fourth and fifth causes of action for conversion on the ground they fail to allege facts sufficient to constitute a cause of action. (CCP § 430.10(e).)

The cause of action for conversion requires a plaintiff plead: (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages. (Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202.)

Defendant again argues that Plaintiffs’ complaint fails to state a cause of action for conversion because they do not allege they owned or had the right to possess any property provided to and converted by Defendant. Again, however, in alleging that Defendant took their investment or loaned funds to use as she wished and did not distribute profits owed to Plaintiff Surgical Needs or repay Loloee for his loan as required by the operating agreement (Compl., ¶¶ 1 and 3), Plaintiffs assert these accusations against Defendant, not only as a wholly separate individual, but as the alter ego of Century Park. As noted above, Plaintiffs’ allegations are sufficient to invoke an alter ego liability theory against Defendant. Further, based on the alter ego predicate, there is no question that Plaintiffs have alleged the elements of conversion, in that they had ownership interests in their invested or loaned funds and Defendant used fraudulent and otherwise wrongful conduct to deprive Plaintiffs of their property. (Id., e.g., ¶¶ 3-9.)

In short, the Court concludes that Defendant’s demurrer must be overruled because Plaintiffs have properly alleged facts sufficient to constitute a cause of action for conversion.

Sixth Cause of Action (Unfair Business Practices)

Defendant demurs to the sixth cause of action for unfair business practices on the ground it fails to allege facts sufficient to constitute a cause of action. (CCP § 430.10(e).)

The Business and Professions Code prohibits “unfair competition,” defined as any “unlawful, unfair, or fraudulent business act or practice.” (Bus. & Prof. Code § 17200.) To bring a claim under this law, a person must have “suffered injury in fact and [have] lost money or property as a result of unfair competition.” (Bus. & Prof. Code § 17204.) “A plaintiff alleging unfair business practices under these statutes must state with reasonable particularity the facts supporting the statutory elements of the violation.” (Khoury, supra, 14 Cal.App.4th 612, 614.)

The Court concludes that Plaintiffs’ allegations of fraud and other forms of financial misconduct are sufficient to state a cause of action for unfair business practices. (Comp., ¶¶ 4-7, 23-25, 70.) Further, there is no question that Plaintiffs have alleged “injury-in-fact” sufficient to confer standing to sue under Business and Professions Code § 17204. (Id., e.g., ¶¶ 8-9.) Defendant’s arguments to the contrary are not well-taken.

As a result, the Court overrules Defendant’s demurrer to this cause of action, finding Plaintiffs’ allegations to be sufficient to assert a claim for unfair business practices.

CONCLUSION:

For the reasons above, Defendant’s demurrer to the complaint is OVERRULED in its entirety. Defendant shall file her Answer within 20 days of this Order.

Moving party to give notice.

IT IS SO ORDERED.

Dated: April 12, 2023 ___________________________________

Theresa M. Traber

Judge of the Superior Court

Any party¿may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org¿by no later than¿4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.