Judge Thomas D. Long, Case Number: 22STCV27086, Date: 2023-09-05 Tentative Ruling

On July 12, 2023, Plaintiff C&J Food Company filed a first amended complaint (“FAC”) against Defendant Joseph Ronald Conzonire.

A demurrer for sufficiency 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, accepting the alleged facts as true. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.)

A. Plaintiff Sufficiently Alleges Fraud by Concealment (Second Cause of Action).

Fraud based on concealment requires that “(1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 310-311.) Less specificity is required to plead fraud by concealment. (Ibid.) “Even under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party.” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1256, 1384.)

Defendant argues that Plaintiff does not plead fraud with specificity and does not identify the “who, what, when and how.” (Demurrer at pp. 5-7.) Plaintiff alleges that Defendant fraudulently concealed, with the intent to defraud Plaintiff, the unauthorized personal expense payments, excess compensation payments, payments of Corky’s salary to Marilyn, and excess payments of taxes that resulted in tax refunds to Defendant. (FAC ¶¶ 30, 32; see FAC ¶¶ 16-20.) As an officer of Plaintiff, Defendant had a duty to disclose such fact to Plaintiff. (FAC ¶ 31.) Plaintiff was unaware of the facts and otherwise would not have made the excess salary payments, payments for personal expenses, excess tax payments, or payments of Corky’s salary to Marilyn after Corky’s death. (FAC ¶ 33.) As a result, Plaintiff was damaged in an amount no less than $10 million. (FAC ¶ 34.) This sufficiently alleges fraudulent concealment.

Defendant also argues that Plaintiff “presents only facts that show the exact opposite of concealment or any intent to conceal.” (Demurrer at p. 8.) According to Defendant, “allegations that Conzon ire did not seek consent from the Board, other Officers, or shareholders is not fraud, nor is it concealment”; “There are no allegations of any compensation amounts for Conzonire stated in any records of C&J Food”; “there is not a single particularized or specific factual allegation that Conzonire secretly, or otherwise made any attempt to conceal or shield what he was being paid from C&J Foods”; “All compensation to Conzonire was booked as ‘compensation’”; and “all checks and transactions were placed through C&J Food payroll accounts and recorded, and readily available for anyone who reviewed them for any purpose.” (Demurrer at pp. 8-9.) Defendant also argues that Plaintiff was on constructive notice of the payments. (Demurrer at pp. 10-11.) These arguments go to the merits of the claim, whether the information was actually concealed, and whether Plaintiff acted reasonably—and so these arguments are outside the scope of demurrer.

B. Plaintiff Sufficiently Alleges Breach of Fiduciary Duty (First Cause of Action).

A cause of action for breach of fiduciary duty requires (1) a fiduciary duty, (2) breach of the duty, and (3) damage caused by the breach. (Charnay v. Cobert¿(2006) 145 Cal.App.4th 170, 182.) Legal relationships that give rise to fiduciary duties include corporate officers and directors. (See Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 632-633.)

Defendant argues that Plaintiff does not state a claim for breach of fiduciary duty because Plaintiff “makes only a conclusory and loaded allegation of ‘misappropriation’ but presents no particularized or detailed facts of the requisite basis for seeking a breach of fiduciary duty based on fraudulent concealment.” (Demurrer at p. 11.)

Plaintiff alleges that Defendant, an officer of the company, owed Plaintiff “certain fiduciary duties, including without limitation, to act in good faith with undivided loyalty and faithfully serve C&J.” (FAC ¶ 23.) Defendant breached his fiduciary duties by misappropriating Plaintiff’s funds through unauthorized personal expense payments, excess compensation payments, payments of Corky’s salary to Marilyn, and excess payments of taxes that resulted in tax refunds to Defendant. (FAC ¶ 24.) As a result, Plaintiff was damaged in an amount of at least $10 million. (FAC ¶ 26.) This sufficiently alleges Defendant’s breach of fiduciary duty through his fraudulent concealment.

Defendant argues that Plaintiff “seeks to use the claim to identify purchases, assets, and transactions of the Defendant Conzonire upon receipt of his salary,” and this “has no relevance to any issue in the case, or attached to any other claim or cause of action alleged by C&J in the FAC.” (Demurrer at p. 13.) Defendant also argues that Plaintiff has already ascertained the amounts through an audit by Berkely Research Group. (Demurrer at p. 13.)

During the preparation of Paycheck Protection Program paperwork, Plaintiff discovered that Defendant had written checks to himself for seemingly random amounts totaling nearly $1,400,000 during 2019. (FAC ¶ 14.) Berkeley Research Group’s forensic accounting investigation discovered checks at least $62,000 for personal expenses during the years 2015 through February 2020, and checks totaling over $10,000,000 during the period between 2011 and September 2020. (FAC ¶¶ 15-16.) Defendant also paid himself approximately $7,977,000 in compensation during that period, and unilaterally continued paying Corky’s monthly salary to Marilyn after Corkey’s death. (FAC ¶¶ 16, 18.) Plaintiff alleges that the amount of money misappropriated by Defendant is unknown and requires an accounting. (FAC ¶ 37.) This sufficiently pleads an accounting.

The court may, upon a motion or at any time in its discretion: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc., § 436, subds. (a)-(b).)

Defendant moves to strike paragraphs 28 and 35, and the prayer for punitive damages. A plaintiff can recover punitive damages in tort cases where “the defendant has been guilty of oppression, fraud, or malice.” (Civ. Code § 3294, subd. (a).) “The mere allegation an intentional tort was committed is not sufficient to warrant an award of punitive damages. [Citation.] Not only must there be circumstances of oppression, fraud or malice, but facts must be alleged in the pleading to support such a claim. [Citation.]” (Grieves v. Superior Court (1984) 157 Cal.App.3d 159, 166, fn. omitted.) Because the Court overrules the demurrer to the first and second causes of action, there is a basis for a finding of fraud. The motion to strike punitive damages is denied.

Defendant also moves to strike language in the third cause of action at page 7, lines 22-26, which requests an accounting of certain items. Defendant’s argument repeats the arguments in his demurrer. To the extent that Defendant is objecting to the specific evidence sought in the accounting, that is more properly addressed in discovery and at later litigation stages. The motion to strike is denied.

Defendant is ordered to file an answer within 10 days. (California Rules of Court, rule 3.1320(j)(1).)

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. If all parties in the case submit on the tentative ruling, no appearances before the Court are required unless a companion hearing (for example, a Case Management Conference) is also on calendar.

Hon. Thomas D. Long

Judge of the Superior Court