Judge: Theresa M. Traber, Case: 22STCV34604, Date: 2023-09-27 Tentative Ruling

Case Number: 22STCV34604    Hearing Date: January 12, 2024    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     January 12, 2024                               TRIAL DATE: NOT SET

CASE:                         Shenghua Entertainment, et al. v. CineLou Films, LLC, et al.

CASE NO.:                 22STCV34604           

MOTION FOR ORDER REQUIRING PLAINTIFFS TO FURNISH SECURITY

MOVING PARTY:               Defendants Atmosphere Entertainment MM, Inc. and Mark Canton

RESPONDING PARTY(S): No response on eCourt as of 1/9/24.

CASE HISTORY:

·         10/28/22: Complaint filed.

·         07/20/23: First Amended Complaint filed.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

            This is an action for breach of contract and unjust enrichment. Plaintiffs allege that Defendants breached their obligations arising from a 2016 loan agreement to finance production of several film projects and a 2018 settlement agreement intended to resolve some of the disputes arising from those projects.

            Defendants Atmosphere Entertainment MM, Inc. and Mark Canton move for an order requiring Plaintiffs to furnish security for attorney’s fees and costs expected in this action.

TENTATIVE RULING:

            Defendants Atmosphere Entertainment MM Inc. and Mark Canton’s Motion for Order Requiring Plaintiffs to Furnish Undertaking is GRANTED.

            Plaintiffs are ordered to file an undertaking with this Court in the amount of $300,000 within 30 days of this order.

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DISCUSSION:

            Defendants Atmosphere Entertainment MM, Inc. and Mark Canton move for an order requiring Plaintiffs to furnish security for attorney’s fees and costs expected to be incurred in defense of this action.

Legal Standard for Requiring Security

Under Code of Civil Procedure section 1030(a), a defendant sued by an out-of-state plaintiff “may at any time apply to the court by noticed motion for an order requiring the plaintiff to file an undertaking to secure an award of costs and attorney’s fees which may be awarded in the action or special proceeding.” (Code Civ. Proc. § 1030(a).) To prevail on a motion for undertaking, the defendant must show that: (1) the plaintiff resides out of state or is a foreign corporation; and (2) there is a “reasonable possibility” that the defendant will obtain a judgment in the matter. (Code Civ. Proc. § 1030(b).) A defendant need not show that there is no possibility of the plaintiff prevailing—only that it is reasonably possible that defendant will prevail. (Baltayan v. Estate of Getemyan (2001) 90 Cal.App.4th 1427, 1432.)  Additionally, the motion must be accompanied by a supporting affidavit or declaration that sets forth the nature and amount of the costs the defendant has incurred and expects to incur. (Code Civ. Proc. § 1030(b).) Finally, “the determinations of the court under this section have no effect on the determination of any issues on the merits of the action . . . and may not be given in evidence nor referred to in the trial of the action or proceeding.”  (Code Civ. Proc. § 1030(f).) 

Foreign Corporate Plaintiffs

            The First Amended Complaint expressly states that both Plaintiffs are corporations organized under the laws of Taiwan with a principal place of business in Taiwan. (FAC ¶¶ 1-2.) It is therefore undisputed that both Plaintiffs in this action are foreign corporations.

Reasonable Possibility of Prevailing

The moving Defendants contend that they have a reasonable possibility of prevailing on each of the three causes of action asserted against them. Plaintiffs pled three causes of action in the First Amended Complaint: a claim for breach of contract arising from a 2018 Settlement Agreement (FAC ¶¶ 38-43), a second claim for breach of contract arising from a 2016 Loan Agreement, (FAC ¶¶ 44-49), and a claim for unjust enrichment that is derivative of the first two causes of action. (FAC ¶¶ 50-53.)

Defendant Atmosphere concedes that it is a party to the 2018 Settlement Agreement, and thus is potentially subject to the first cause of action. Atmosphere states, however, that its only obligation under the 2018 settlement is to pay a portion of the back-end revenues “which Atmosphere is actually paid[ ] on [the film] Red Sonja.” (FAC Exh. D § 2(c).) Defendant Canton, as owner of Atmosphere, states under penalty of perjury that Red Sonja has not yet been released. (Declaration of Mark Canton ISO Mot. ¶ 4.) Thus, Defendants contend, Atmosphere’s performance has not yet come due, and no claim for breach of contract has accrued on this issue. (Romano v. Rockwell International, Inc. (1996) 14 Cal.4th 479, 488.) As Plaintiffs have not responded to this motion, the Court finds that Atmosphere has demonstrated a reasonable probability of success as to a claim asserted against it on this basis.

Defendants contend that all other potential claims against them arise solely from the theory that the moving Defendants are alter egos of Cinelou Films (with respect to the first cause of action) and Comedian Productions (with respect to the second cause of action.) As only Atmosphere is identified on any of the operative agreements, and then only on the 2018 settlement agreement and only with respect to the obligations addressed above, the Court concurs with Defendants’ assessment. (See FAC Exhs. A-D.)

The moving Defendants request that Plaintiffs be ordered to furnish security because, assuming arguendo that the allegations of breach against Cinelou and Comedian are true, Defendants nevertheless have a reasonable possibility of defeating Plaintiffs’ alter ego claim, which would consequentially defeat all of Plaintiffs’ remaining claims against them.

            To hold an owner of a corporation personally liable for the acts of the corporation as an alter ego of the owner, “[f]irst, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 539.) “Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other. [citations] Other relevant factors . . . include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers.” (Id. at 538-39.)

            Defendants’ principal evidence in support of their position is a Declaration from Defendant Canton, in which he admits that he is the founder, CEO, secretary, director, and CFO of Defendant Atmosphere Entertainment MM, Inc, and has provided a copy of the articles of organization. (Canton Decl. ¶ 2, Exh. A.) Defendant Canton states that he is not an owner, member, or stakeholder of any of the other entity defendants. and has no involvement with their corporate filings or bank accounts. (Id. ¶¶ 5-6.) Defendant Canton also categorically states that Atmosphere maintains a separate bank accounts and that it does not commingle company funds with Canton’s personal funds. (¶¶ 7-8.) Defendant Canton also flatly denies diverting company funds for personal benefits or holding himself out as personally liable for the debts of any of the corporate Defendants. (Canton Decl. ¶¶ 6-8.)

            As Plaintiffs have not opposed the motion, the Court finds that Defendants have presented uncontested sworn testimony negating essential elements of the alter ego claims. The Court therefore finds that the moving Defendants have demonstrated a reasonable possibility of prevailing on the alter ego claim, and, therefore, a reasonable possibility of prevailing in the action.

Amount of Security

            Defendants request that Plaintiffs be required to furnish security in the amount of $610,000, which they contend accounts for the total costs and fees they expect to incur. Attorney Kevin Kroll states that he expects Defendants will need to take three depositions outside of the United States, which will, at a conservative estimate, incur costs of at least $18,000, plus $10,000 in travel costs. (Declaration of Kevin Kroll ISO Mot. ¶¶ 5-6.) Defendants also anticipate at least eight depositions inside the United States, including depositions of named individuals Defendant Solomon, Mark Canton, Freddy Bush, and Scott Carol, as well as employees of Cinelou and agents of Sony Pictures, which they estimate will cost $3,250 per deposition, for a total of at least $26,000. (Id. ¶ 7.) Further, Defendants anticipate the need for at least one expert to testify to the commercial performance of the motion pictures at issue in this case and their connection to Defendants’ alleged gross mismanagement for a total of $60,000. (Id. ¶ 8.) In addition, Attorney Kroll states that the parties have incurred at least $25,000 in attorney’s fees on this matter at hourly rates between $525 and $650 per hour. (Id. ¶ 9.) Finally, Attorney Kroll anticipates that the remaining legal fees through trial will constitute some $455,000 for the remainder of the litigation, plus approximately $41,000 in filing and motion fees, jury fees, service fees, court reporter and interpreter fees, and costs for models, enlargements, photocopies, and electronic filing.  (Id. ¶¶ 4, 10.)

            The Court is not persuaded of the accuracy of Defendants’ projected fees and costs.  In particular, Attorney Kroll provides no breakdown of the hours expected to be incurred, especially with respect to trial preparation, which lists nonspecific anticipated motions and post-trial motions and submissions. (Kroll Decl. ¶ 10.) The Court also observes that the Declaration does not explain how the estimate of $610,000 was reached beyond it being based on the complexity and range of pertinent issues in the action, and an assertion that it is “appropriate, perhaps even conservative.” (Kroll Decl. ¶ 4.) Without additional detail in support of Defendants’ contentions, the Court concludes that a more appropriate amount would be a total of $300,000.00.

CONCLUSION:

            Accordingly, Defendants Atmosphere Entertainment MM Inc. and Mark Canton’s Motion for Order Requiring Plaintiffs to Furnish Undertaking is GRANTED.

            Plaintiffs are ordered to file an undertaking with this Court in the amount of $300,000.00 within 30 days of this order.

            Moving Parties to give notice.

IT IS SO ORDERED.

Dated:  January 12, 2024                                ___________________________________

                                                                                    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.