Judge: Timothy B. Taylor, Case: 37-2021-00032000-CU-FR-CTL, Date: 2023-08-18 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

DEPT.:

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HALL OF JUSTICE

TENTATIVE RULINGS - August 17, 2023

08/18/2023  01:30:00 PM  C-72 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Timothy Taylor

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Civil - Unlimited  Fraud Motion Hearing (Civil) 37-2021-00032000-CU-FR-CTL INNOVATIVE MEDICAL SUPPLIES LLC VS ADVANCED TEAR DIAGNOSTICS LLC CAUSAL DOCUMENT/DATE FILED: Motion to Consolidate Cases, 05/23/2023

Tentative Rulings for August 18, 2023

Innovative Medical Supplies LLC v. Advanced Tear Diagnostics, Case No. 2021-32000 August 18, 2023, 1:30 p.m., Dept. 72 1. Overview and Procedural Posture.

Although filed as a fraud case, this case is (at least in part) a wrestling match over control of plaintiff (which the parties refer to as IMS). The plaintiff, an LLC, is owned 50/50 by Shull and Dobron; they have been at odds over management of IMS for two years.

The initial six count complaint was filed in July, 2021 against ATD and its principal, Smith. IMS alleged it is the 'sole authorized distributor' for ATD's 'TearScan 300' device (an 'FDA-cleared ophthalmic diagnostic system used to test and diagnose various dry-eye conditions'). IMS further alleged defendants 'stole IMS's money and apparently used it for personal expenditures and other projects unrelated to the parties' joint venture.' The complaint was filed on IMS's behalf by an attorney named Galdston. Galdston receives direction from Dobron.

The case was assigned to Judge Medel. ROA 5. Shortly thereafter, a lawyer named La Costa attempted to dismiss the case. The dismissal was rejected by the clerk's office because La Costa is not counsel of record. ROA 8. Judge Medel later declined to allow a substitution in favor of La Costa, and confirmed he could not dismiss the case. ROA 26. La Costa was taking his direction from Shull.

The case was then reassigned to Judge Braner. ROA 28. Technically, this occurred when this court had no jurisdiction (as the case had been removed to federal court). ROA 24.

After remand (ROA 29), IMS filed a Notice of Related Case identifying Dobron v. Shull, No. 2021-46263, assigned to Judge Sturgeon. ROA 30. That case had been commenced in October of 2021, and there is a cross-complaint (filed on Shull's behalf by La Costa). Both sides accuse the other of breach of fiduciary duty. Neither side complied with Local Rule 2.1.3.1 in connection with the Notice of Related Case. Judge Sturgeon held two CMCs, but both times little more than inaction was reported.

Five months after the Notice of Related Case was filed, IMS filed the nine count FAC, which added Axim as a defendant and added additional claims. ROA 31. Defendants Smith and ATD demurred to the Calendar No.: Event ID:  TENTATIVE RULINGS

2977855  31 CASE NUMBER: CASE TITLE:  INNOVATIVE MEDICAL SUPPLIES LLC VS ADVANCED TEAR  37-2021-00032000-CU-FR-CTL FAC. ROA 35-39; 44-61. Smith and ATD are represented by an attorney named Fox (who is closely aligned with La Costa). Axim, the new defendant, challenged Judge Braner. ROA 73. This led to the reassignment to Dept. 72. ROA 67.

The parties have been before the court twice on the ex parte calendar in Dept. 72 since the reassignment. Both times, Axim was seeking to enforce a settlement agreement it contends it has with IMS (signed by Shull but not Dobron). Both times, the court denied ex parte relief (finding no emergency). ROA 81-97, 108-121.

Presently before the court are the following: A. IMS motion to consolidate Dobron v. Shull, No. 2021-46263, with this case. ROA 69-70.

B. Smith/ATD demurrers to FAC.* ROA 35-39; 44-61, 66-67.

C. Axim motion to enforce settlement. ROA 135-141.

D. Axim demurrer and motion to strike portions of FAC relating to attorneys' fees and punitive damages.

ROA 102-105.

The court has reviewed the moving papers, as well as the opposition and reply briefing filed by the parties. ROA 152-164, 168-171. The case is also set for a CMC. ROA 96.

2. Applicable Standards.

A. Code of Civil Procedure section 1048 'grants discretion to the trial courts to consolidate actions involving common questions of law or fact.' Todd-Stenberg v. Dalkon Shield Claimants Trust (1996) 48 Cal.App.4th 976, 978. However, it is possible that actions may be thoroughly 'related' in the sense of having common questions of law or fact, and still not be 'consolidated,' if the trial court, in the sound exercise of its discretion, chooses not to do so. Askew v. Askew (1994) 22 Cal.App.4th 942, 964. CRC 3.350 sets forth procedural requirements for motions to consolidate.

B. Code of Civil Procedure section 664.6 provides a summary procedure to enforce a settlement agreement by entering judgment pursuant to the terms of the settlement. Hines v. Lukes (2008) 167 Cal.App.4th 1174, 1182. The statute provides: 'If parties to pending litigation stipulate, in a writing signed by the parties outside of the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.' Code Civ. Proc. § 664.6(a). The controlling case law interpreting section 664.6 is In Re Marriage of Assemi (1994) 7 Cal.4th 896, and its progeny, Weddington Productions v. Flick (1998) 60 Cal.App.4th 793. Read together, those cases make clear that in order for the court to enter judgment pursuant to a purported settlement agreement, that agreement must be sufficiently definite to manifest the intent of the parties to finally settle an existing proceeding, and must clearly and unambiguously establish the terms of the agreement.

C. A general demurrer may only be sustained if the complaint fails to state a cause of action under any possible legal theory. Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 810. Properly pleaded facts must be accepted as true, but not contentions or conclusions of law or fact. Czajkowski v. Haskell & White, LLP (2012) 208 Cal.App.4th 166, 173. The court's function is limited to testing the legal sufficiency of the complaint, which must be construed with a view to substantial justice between the parties. Fremont Indemnity Co. v. Fremont General Crop. (2007) 148 Cal.App.4th 97, 113; Code Civ.

Proc. § 452.

D. Code of Civil Procedure section 430.10(f) permits a defendant to demur to a complaint that is uncertain. However, demurrers for uncertainty are disfavored and therefore strictly construed. Chen v. Berenjian (2019) 33 Cal.App.5th 811, 822.

Calendar No.: Event ID:  TENTATIVE RULINGS

2977855  31 CASE NUMBER: CASE TITLE:  INNOVATIVE MEDICAL SUPPLIES LLC VS ADVANCED TEAR  37-2021-00032000-CU-FR-CTL E. 'The well-known elements of a cause of action for fraud are: (1) a misrepresentation, which includes a concealment or nondisclosure; (2) knowledge of the falsity of the misrepresentation, i.e., scienter; (3) intent to induce reliance on the misrepresentation; (4) justifiable reliance; and (5) resulting damages.' Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519. '[F]raud must be pled specifically; general and conclusory allegations do not suffice.' Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.

F. Civil conspiracy is not an independent cause of action. Navarrete v. Meyer (2015) 237 Cal.App.4th 1276, 1291. Instead, it is a theory of co-equal legal liability under which certain defendants may be held liable for 'an independent civil wrong' committed by others. Id. 'To state a cause of action for conspiracy, a complaint must allege: (1) the formation and operation of the conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) the damage resulting from such act or acts.' Schick v. Lerner (1987) 193 Cal.App.3d 1321, 1327-28. 'In making such allegations bare legal conclusions, inferences, generalities, presumptions, and conclusions are insufficient.' Nicholson v. McClatchy Newspapers (1986) 177 Cal.App.3d 509, 521.

G. A cause of action is stated for money had and received if 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.' Pike v. Zadig (1915) 171 Cal. 273, 275-76.

H. Conversion is the wrongful exercise of dominion over the personal property of another. Fremont Indemnity, 148 Cal.App.4th at 119. 'The basic elements of the tort are (1) the plaintiff's ownership or right to possession of personal property; (2) the defendant's disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages.' Id. I. 'A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.' Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.

J. 'Unjust enrichment is synonymous with restitution.' Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370. 'A person is required to make restitution if the failure to do so would result in unjust enrichment.' Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 233. 'Restitution based on unjust enrichment is not available, however, if an enforceable express contract determines the parties' rights and obligations.' Id. at 234.

K. 'Every contract contains an implied covenant of good faith and fair dealing providing that no party to the contract will do anything that would deprive another party of the benefits of the contract.' Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 873, 885. 'In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.' Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1153. The elements are set forth in CACI 325.

L. 'To recover in tort for intentional interference with the performance of a contract, a plaintiff must prove: (1) a valid contract between plaintiff and another party; (2) defendant's knowledge of the contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.' Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 514 fn. 5.

M. 'Intentional interference with prospective economic advantage has five elements: (1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant's action.' Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512.

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2977855  31 CASE NUMBER: CASE TITLE:  INNOVATIVE MEDICAL SUPPLIES LLC VS ADVANCED TEAR  37-2021-00032000-CU-FR-CTL N. Code of Civil Procedure section 436 authorizes a court to strike allegations from a pleading in two situations. Under subdivision (a), the court may strike 'any irrelevant, false, or improper matter inserted in any pleading.' This provision does not authorize striking an entire cause of action, but permits the court to excise 'superfluous or abusive allegations.' Ferraro v. Camarlinghi (2008) 161 Cal.App.4th 509, 528. Subdivision (b) provides that a court may strike 'all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.' This provision 'authorizes the striking of a pleading due to improprieties in its form or in the procedures pursuant to which it was filed' and 'is commonly invoked to challenge pleadings filed in violation of a deadline, court order, or requirement of prior leave of court.' Ferraro, 161 Cal.App.4th at 528. In either situation, the motion is addressed to the sound discretion of the trial court. Clements v. T.R. Bechtel Co. (1954) 43 Cal.2d 227, 242.

O. Motions to strike are often used to challenge portions of causes of action seeking punitive damages.

PH II, Inc. Superior Court (1995) 33 Cal.App.4th 1680, 1683. In order to state a prima facie claim for punitive damages, a complaint must set forth the elements as stated in the general punitive damage statute, Civil Code section 3294. Turman v. Turning Point of Central California, Inc. (2010) 191 Cal.App.4th 53, 63. These statutory elements include allegations that the defendant has been guilty of oppression, fraud, or malice. Civ. Code § 3294(a). As relevant here, 'fraud' is 'an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.' Civ. Code § 3294(c)(3).

3. Requests for Judicial Notice.

ATD seeks judicial notice of various documents filed with the California Secretary of State and the complaint in the Dobron action. ROA 123. Axim likewise seeks judicial notice of documents filed with the California Secretary of State, as well as the Settlement Agreement and General Mutual Release.

ROA 95.

Judicial notice is taken as requested, except as to the Settlement Agreement. Evid. Code § 452(c), (d).

A court may take judicial notice of '[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.' Evid. Code § 452(h). 'The existence and contents of a written agreement may be the proper subject of judicial notice if there is no factual dispute that the document is genuine and accurate.' Chacon v. Union Pacific Railroad (2020) 56 Cal.App.5th 565, 572. Here, however, plaintiff vigorously disputes the validity and authenticity of the Settlement Agreement. Thus, the court may not take judicial notice of it.

4. Discussion and Rulings.

A. The motion to consolidate is denied. The court is not persuaded that the interests of justice would be served by consolidating this action with the Dobron action. While there appears to be some overlap among the parties and facts in the two cases, the nature of the claims asserted is not sufficiently similar so as to warrant consolidation. See Mueller v. J. C. Penny Co. (1985) 173 Cal.App.3d 713, 722 ('The purpose of consolidation is merely to promote trial convenience and economy.').

Nevertheless, to avoid substantial duplication of judicial resources and the specter of potentially inconsistent rulings, the court finds that this action and the Dobron are 'related' under CRC 3.300.

Accordingly, the court hereby orders that Case No. 2021-46263 be transferred to Department 72 so that it can be managed in coordination with Case No. 2021-32000. CRC 3.300(h)(1)(A).

Plaintiff's counsel is directed file a notice of this order in all pending cases and serve a copy of the notice on all parties. CRC 3.300(i)(2).

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2977855  31 CASE NUMBER: CASE TITLE:  INNOVATIVE MEDICAL SUPPLIES LLC VS ADVANCED TEAR  37-2021-00032000-CU-FR-CTL B. The motion to enforce the Settlement Agreement is denied.

It is undisputed that Shull was the Manager of plaintiff at the time he purportedly signed the Settlement Agreement on behalf of plaintiff. As Manager, Shull had 'all necessary powers of direction and control to carry out, the purposes, business, and objectives of the LLC[.]' (Dobron Decl., Ex. C at § 6.2.1.) Nevertheless, California law requires consent of all the members to undertake actions 'outside the ordinary course of business.' See Corp. Code § 17704.07(b)(4), (c)(4).

In this case, Axim has not presented evidence showing that all members of plaintiff consented to the Settlement Agreement. Nor has Axim responded to plaintiff's argument that Shull's execution of the Settlement Agreement was outside the ordinary course of plaintiff's business. Accordingly, Axim has failed to establish all of the requirements of section 664.6 by a preponderance of the evidence. See Code Civ. Proc. § 664.6(a); see also Conservatorship of Wendland (2001) 26 Cal.4th 519, 549 ('The default standard of proof in civil cases is the preponderance of the evidence.').

C. The demurrers to the FAC by ATD and Smith are sustained in part and overruled in part.

The demurrers to the entire FAC based on the Settlement Agreement are overruled. The Settlement Agreement is neither attached to the FAC nor a proper subject of judicial notice. '[A] demurrer looks only to the face of the pleadings and to matters judicially noticeable and not to the evidence or other extrinsic matter.' Knickerbocker v. City of Stockton (1988) 199 Cal.App.3d 235, 239 fn. 2.

ATD's demurrer to the entire FAC based on Axim having allegedly assumed all of ATD's obligations is overruled. This allegation only appears in connection with the unjust enrichment claim. (FAC at ¶ 99.).

'The general rule is that a demurrer which refers to the complaint as a whole will be sustained only when all counts are defective.' Brousseau v. Jarrett (1977) 73 Cal.App.3d 864, 872.

Smith's demurrer to the entire FAC based on his status as a member-manager of ATD is overruled.

Plaintiff alleges that Smith personally participated in the alleged tortious conduct. See People v. Pacific Landmark, LLC (2005) 129 Cal.App.4th 1203, 1207 ('[M]anagers of limited liability companies are not immune from personal liability if they have participated in tortious or criminal conduct while performing duties as managers.'); see also Aspring Holdco, LLC v. NGP X US Holdings, L.P. (Del. Ch. July 30, 2020) 2020 WL 4355555, at *19 ('The personal participation doctrine has been applied in Delaware in the context of a limited liability company.').** The demurrers to count 1 are overruled. Sufficient facts have been pled with the required particularity to state a claim for fraud against ATD and Smith.

The demurrers to count 2 are sustained with leave to amend. While plaintiff has pled the commission of an underlying tort (fraud), there are insufficient facts showing that the alleged fraudulent conduct was committed pursuant to an agreement among defendants. See Nicholson, supra, 177 Cal.App.3d at 521; see also AREI II Cases (2013) 216 Cal.App.4th 1004, 1022 ('[A] complaint must contain more than a bare allegation that defendants conspired[.]').

Smith's demurrer to count 3 and 6 is overruled. Plaintiff alleges that ATD and Smith received money that belonged to plaintiff. (See FAC at ¶¶ 82, 97, 99, 101.) This court must accept this allegation as true.

The demurrers to count 4 are overruled. Sufficient facts have been pled to state a claim for conversion against ATD and Smith.

The demurrers to count 5 are overruled. '[A] fiduciary relationship between the parties is not required to state a cause of action for accounting.' Teselle, supra, 173 Cal.App.4th at 179.

The demurrers to count 7 are overruled. Sufficient facts have been pled to state a claim for breach of Calendar No.: Event ID:  TENTATIVE RULINGS

2977855  31 CASE NUMBER: CASE TITLE:  INNOVATIVE MEDICAL SUPPLIES LLC VS ADVANCED TEAR  37-2021-00032000-CU-FR-CTL the implied covenant of good faith and fair dealing against ATD and Smith. Plaintiff is not required to assert a separate cause of action for breach of contract. See Carson v. Mercury Ins. Co. (2012) 210 Cal.App.4th 409, 429 ('[B]reach of a specific provision of the contract is not a necessary prerequisite to a claim for breach of the implied covenant of good faith and fair dealing.').

D. Axim's demurrer to the FAC is sustained in part and overruled in part.

The demurrer to the entire complaint based on lack of standing is overruled. For the reasons discussed above, the Settlement Agreement is not properly before the court. See Qualified Patients Assn. v. City of Anaheim (2010) 187 Cal.App.4th 734, 752 ('A demurrer lies for lack of standing when the defect appears on the face of the pleading or from judicially noticeable matters.').

The demurrer to count 1 is sustained with leave to amend. Insufficient facts have been pled with the required particularity showing that Axim's CEO knew his statements in May 2021 were false at the time they were made; that he intended to induce plaintiff to take action based on those statements; and that plaintiff did, in fact, rely on those statements. See Cadlo, supra, 125 Cal.App.4th at 519 ('Actual reliance occurs when the defendant's misrepresentation is an immediate cause of the plaintiff's conduct, altering his legal relations, and when, absent such representation, the plaintiff would not, in all reasonable probability, have entered into the transaction.').

The demurrer to count 2 is sustained with leave to amend. For the reasons discussed above, insufficient facts have been pled showing that any alleged fraudulent conduct was committed pursuant to an agreement among defendants. See Nicholson, 177 Cal.App.3d at 521; see also AREI II Cases, 216 Cal.App.4th at 1022.

The demurrer to count 6 is overruled. Sufficient facts have been pled. '[T]he plaintiff need not confer a benefit on the defendant to maintain a cause of action based on unjust enrichment.' City of Oakland v. Oakland Raiders (2022) 83 Cal.App.5th 458, 479.

The demurrer to count 8 is overruled. Sufficient facts have been pled to state a claim for intentional interference with contract.

The demurrer to count 9 is sustained with leave to amend. Plaintiff has failed to allege that Axim's interference was wrongful by some measure beyond the fact of the interference itself. See Stevenson Real Estate Services, Inc. v. CB Richard Ellis Real Estate Services, Inc. (2006) 138 Cal.App.4th 1215, 1224 ('[A] plaintiff must plead and prove that the conduct alleged to constitute the interference was independently wrongful, i.e., unlawful for reasons other than that it interfered with a prospective economic advantage.'); see also Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1159 ('[A]n act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.').

E. Axim's motion to strike portions of the FAC is granted with leave to amend.

With respect to the prayer for punitive damages, insufficient facts have been pled to establish oppression, fraud, or malice within the meaning of Civil Code section 3294(c). As discussed above, plaintiff has not adequately alleged intentional misrepresentation or concealment for purposes of 'fraud.' As for 'oppression' and the second prong of 'malice,' the facts pled do not show 'despicable conduct' – i.e., conduct that is 'so vile, base, or contemptible that it would be looked down on and despised by reasonable people.' CACI 3940. Finally, there are no facts showing an intent to injure plaintiff, as required for the first prong of 'malice.' As for the prayer for attorney's fees, plaintiff has failed to plead an applicable basis supporting a request for attorney's fees. Code Civ. Proc. § 1021.

F. It is ordinarily an abuse of discretion to deny leave to amend unless the inability to state a valid cause Calendar No.: Event ID:  TENTATIVE RULINGS

2977855  31 CASE NUMBER: CASE TITLE:  INNOVATIVE MEDICAL SUPPLIES LLC VS ADVANCED TEAR  37-2021-00032000-CU-FR-CTL of action is clear. In this respect, plaintiff has the burden to show in what manner it can amend the FAC and how the amendment will change the legal effect of the pleading. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. Plaintiff has not done so. However, '[l]iberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given.' Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227. Accordingly, plaintiff is granted leave to amend (i) count 2 as to ATD and Smith; (ii) counts 1, 2, and 9 as to Axim; (iii) the prayers for punitive damages and attorney's fees as to Axim.

Plaintiff must file and serve the second amended complaint by August 28, 2023.

_______________________ *The supporting memoranda of points and authorities both demurrers exceed the page limitations set forth in CRC 3.1113(d).

**'Opinions from other jurisdictions can be cited without regard to their publication status.' Lebrilla v. Farmers Group, Inc. (2004) 119 Cal.App.4th 1070, 1077.

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