Judge Timothy Patrick Dillon, Case Number: 23STCV10614, Date: 2023-09-28 Tentative Ruling

Judge: Timothy Patrick Dillon, Case: 23STCV10614, Date: 2023-09-28 Tentative Ruling

02/28/2023

Dept. 73

Judge Dillon

Steven Liu, individually and derivatively, v. Saratoga Maintenance Corp., et al. (21STCV34342)

Counsel for Defendants/moving party: Timothy R. Windham, Helen H. Lee (Lewis Brisbois Bisgaard & Smith)

Counsel for Plaintiff/opposing party: Steven W. Kerekes (Law Offices of Steven Kerekes)

DEMURRER WITH MOTION TO STRIKE

(filed 11/30/2022)

TENTATIVE RULING

The Demurrer is SUSTAINED as to the third cause of action with leave to amend.

The Demurrer is SUSTAINED as to the fourth cause of action without leave to amend.

The motion to strike is MOOT in part and GRANTED with leave to amend in part.

Discussion

This is a derivative action filed by Plaintiff Steven Liu on behalf of Defendant Saratoga Maintenance Corporation (“Saratoga”). Plaintiff originally pursued this action in his individual capacity, (see Case No. 19STCV25459), and alleged seven causes of action against Saratoga, Defendant John Leon, Defendant Frank Macciola, and Defendant Jerry Schmidt (collectively “Defendants”). The seven causes of action included: (1) breach of fiduciary duty – failure to use reasonable care; (2) breach of fiduciary duty – duty of loyalty; (3) fraudulent concealment (4) violation of civil § 5235, to enforce member’s right to production and inspection of HOA records; (5) violation of the Covenants, Conditions and Restrictions (CC&R), Article VII, Section V; (6) violation of Civil Code § 5515, and (7) violation of Corp. Code § 5145.

On the eve of trial, pursuant to an oral request made by Plaintiff, the court dismissed the entire action without prejudice. (09/09/21 Order – Dismissal, Case No. 19STCV25459.) On September 16, 2021, Plaintiff refiled the instant action reasserting all seven causes of action. With the exception of the fourth cause of action, all previous causes of action were realleged derivatively. Additionally, Plaintiff included two new claims: (1) Derivative Action for Declaratory Relief, and (2) Declaratory Relief.

The operative First Amended Complaint (“FAC”) asserts the same nine causes of action.

A summary of the underlying events according to Plaintiff is as follows. Saratoga is a homeowners’ association and Defendants Leon, Macciola, and Schmidt served as its Board of Directors. (FAC, ¶ 1.) On or around August 19, 2015, Defendants terminated a contract with a licensed landscaping company and hired Alberto Marquez (“Marquez”), an employee of the landscaping company, to perform landscaping work at higher cost and with fewer services provided. (FAC, ¶ 19.) As a result, annual landscaping costs for Saratoga members increased from $30,251 to $35,065. (FAC, ¶ 21.) After Marquez completed one year of work, Defendants, without discussion or approval from homeowners, increased Marquez’s monthly fee by 20%. (FAC, ¶ 23.) Leading up to and throughout this period, Leon made unauthorized and undocumented payments to Marquez on behalf of Saratoga for landscaping services rendered and then sought reimbursement. (FAC, ¶ 18-19, 25.) Consequently, Plaintiff, other homeowners, and Saratoga have been financially harmed. (FAC, ¶ 32.)

On November 30, 2023, Defendants filed the instant Demurrer and Motion to Strike the FAC arguing that the third, fourth, and eighth causes of action (1) fail to state sufficient facts to constitute a cause of action and (2) are uncertain, ambiguous, and unintelligible. Defendants also argue that the FAC fails to plead facts necessary to support punitive damages. Plaintiff filed opposition on February 14, 2023, and Defendants replied on February 21, 2023.

Meet and Confer

Code of Civil Procedure §§ 430.4 (a), and 435.5 (a), require meeting and conferring “in person or by telephone” at least five days before filing a demurrer or motion to strike. Defendants’ counsel declares that she had a telephone discussion with Plaintiff’s counsel on November 23, 2022 and they could not resolve the dispute. (Lee Decl., ¶2.) Accordingly, the Court finds that Defendants’ meet-and-confer efforts were sufficient.

Request for Judicial Notice

Courts may take judicial notice of regulations and legislative enactments issued by any public entity in the United States or of records of any court of this state. Cal. Evid. Code §§ 452(d)(1) and 452(e)(1). When the ground of demurrer is based on a matter of which the court may take judicial notice pursuant to Section 452 or 453 of the Evidence Code, such matter shall be specified in the demurrer, or in the supporting points and authorities for the purpose of invoking such notice. CCP § 430.70.

Defendants request judicial notice of the following public records:

1. Exhibit A: Complaint filed in Superior Court of Los Angeles as Case Number: 19STCV25459.

2. Exhibit B: Complaint filed in Superior Court of Los Angeles as Case Number 17AHSC05898.

Exhibits A and B are court records. Thus, judicial notice of these records is appropriate. Defendants’ request for judicial notice is GRANTED.

Plaintiff requests judicial notice of the following:

1. Exhibit A: Certificate of Compliance with ADR filed in the original case on 10/11/2019 in Liu v. Saratoga Maintenance Corp., et al., Case No. 19STCV25459.

2. Exhibit B: Joint Report to Court Regarding Status of Mediation, filed in the original case on 1/30/2020 in Liu v. Saratoga Maintenance Corp., et al., Case No.19STCV25459.

3. Exhibit C: Court’s Tentative Ruling on Demurrer filed in original case on 6/23/2020, Liu v. Saratoga Maintenance Corp., et al., Case No. 19STCV25459.

4. Exhibit D: Defendants’ Motion for an Order Requiring the Posting of a Bond fled in the Instant Action on or about October 21, 2021.

5. Exhibit E: The Court’s Minute Order Denying Motion for Bond in the instant case dated March 23, 2022.

6. Exhibit F: Demurer to original Complaint by defendants fled in the instant case on 9/6/2022.

7. Exhibit G: Court’s Ruling on Demurrer by defendants to original Complaint filed in the instant case dated 10/13/2022.

Judicial notice as to Plaintiff’s requested records is also appropriate. Exhibits A-G are court records. Accordingly, Plaintiff’s request for judicial notice is GRANTED.

ANALYSIS

Defendants demur to the third, fourth, and eighth causes of action in the FAC because they (1) fail to state sufficient facts to constitute a cause of action, and (2) are uncertain, ambiguous, and unintelligible.

A. Legal Standard for Demurrer

A demurrer tests the sufficiency of 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—any 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 pleading alone, and not the evidence or facts alleged.” (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such, the court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (Id.) The only issue a demurrer is concerned with is whether the complaint, as it stands, states a cause of action. (Hahn, supra, 147 Cal.App.4th at p. 747.)

I. Fraudulent Concealment

The elements of a cause of action for fraudulent concealment are: (1) concealment of a material fact; (2) by a defendant with a duty to disclose; (3) the defendant intended to defraud by failing to disclose; (4) plaintiff was unaware of the fact and would not have acted as it did had it known the fact; and (5) damages. (Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162.)

Defendants argue that the cause of action is barred by the statute of limitations. However, the Court has already found that the equitable tolling doctrine applies in this case and overruled the previous demurrer on this ground. Defendants do not reassert this argument in reply.

Defendants also argue that this cause of action being pled as a derivative action does not make sense, because there are no allegations that anything was concealed from the Association. Further, Plaintiff requested documents for himself under Civil Code Section 5205 (See Paragraph 64 of the FAC) as a member of the Association, not on behalf of the Association. The documents that were requested are the Association’s documents, so it is unclear how the Association is concealing documents from itself.

As the Court previously stated in its prior ruling on demurrer, Plaintiff brings this claim derivatively, in addition to his individual capacity, the real plaintiff is Saratoga. Thus, on its face, a derivative fraudulent concealment claim fails because Plaintiff cannot allege facts to show that that Saratoga did not know of the concealed facts or that Saratoga would have behaved differently if the concealed information had been disclosed. Plaintiff has not amended the Complaint to remedy this.

As to the direct claim, Plaintiff still fails to show how he would have behaved differently. Plaintiff has added allegations that he “would have petitioned and voted to require that proper and normal procedures be instituted and utilized before the defendants [could] authorize[d] payments from HOA funds, including receipt of proper invoicing, and verification of the work or materials invoiced. They would have also disallowed the improper payments and disbursements alleged above and disallowed the transfer of funds from the reserve account to the general operating account.” However, these allegations do not show how this would have prevented the resulting damage. Without further specificity, the damages appear to already have been sustained.

Accordingly, the Court SUSTAINS the Demurrer as to the third cause of action in its entirety.

II. Violation of Right to Production and Inspection

Plaintiff brings the fourth cause of action as an individual. Civil Code § 5235 states in relevant part

(a) A member may bring an action to enforce that member’s right to inspect and copy the association records. If a court finds that the association unreasonably withheld access to the association records, the court shall award the member reasonable costs and expenses, including reasonable attorney’s fees, and may assess a civil penalty of up to five hundred dollars ($500) for the denial of each separate written request.

(b) (b) A cause of action under this section may be brought in small claims court if the amount of the demand does not exceed the jurisdiction of that court. (Civ. Code § 5235 (b).)

Defendant argues that this claim is barred by the doctrine of res judicata because Plaintiff pursued this claim in small claims court. (See Defendants’ Request for Judicial Notice, Exh. B.) In opposition, Plaintiffs argue that the Court only sustained the previous demurrer based on this argument because Plaintiffs did not allege that the small claims court did not rule on the merits. However, in the Court’s ruling on this cause of action, it noted that the original Complaint alleged that the small claims court did not rule on the merits. (See Plaintiffs’ Request for Judicial Notice, Exh. G, Complaint ¶ 115.) Accordingly, the Court did consider this.

Accordingly, the Court agrees with Defendants as it did in its prior order. Res judicata precludes parties or their privies from relitigating a cause of action that has been finally determined by a court of competent jurisdiction. (Rice v. Crow (2007) Cal.App.4th 725, 734.) The small claims court issued a judgment stating that “Defendants Johnny Leon; Saratoga do not owe the plaintiff Steven Liu any money on plaintiffs claim.” Therefore, the Court finds that Plaintiff’s fourth cause of action is precluded from relitigation.

Accordingly, the Court SUSTAINS the Demurrer as to the fourth cause of action.

III. Derivative Action for Declaratory Relief

As Plaintiff points out, Defendants make the same arguments they made on the previous demurrer, which the Court rejected. As the Court has previously stated, while no controversy may presently exist between Marquez and Saratoga, a controversy does exist derivatively between Plaintiff and Saratoga about Marquez. As such, the Court OVERRULES the Demurrer as to the eighth cause of action.

IV. Entire FAC

Defendants assert arguments relating to a demurrer to the entire FAC in the body of the demurrer. However, the notice does not put the entire FAC at issue and as such the Court does not address these arguments as they are not properly before the Court.

V. Leave to Amend

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”]; Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 [“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”]; Vaccaro v. Kaiman (1998) 63 Cal.App.4th 761, 768 [“When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend.”].) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

Because Plaintiff has only filed one amended complaint in this action, the Court GRANTS leave to amend as to the third cause of action. As to the fourth cause of action, res judicata applies. Accordingly, the Court DENIES leave to amend as to the fourth cause of action.

VI. Motion to Strike

A motion to strike lies only where the pleading has irrelevant, false or improper matter, or has not been drawn or filed in conformity with laws.¿ (Civ. Proc. Code § 436.)¿ The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice.¿ (Id. § 437.)¿¿¿

Defendants request the Court to strike the following portions of the FAC without leave to amend:

· Punitive Damages: Paragraphs 63, 66, 71, and Prayers for Relief Nos. 4 and 6.

1. Punitive Damages

Defendants move to strike Plaintiff’s prayer for punitive damages for failure to allege facts sufficient to show malice, oppression or fraud. Plaintiff contends that the Complaint is alleges multiple instances of malice and oppression.

Civ. Code § 3294 (b) permits a plaintiff to recover punitive damages from an employer who was personally guilty of oppression, fraud, or malice. “Malice” means an intent to cause injury or despicable conduct done with a willful and conscious disregard of the rights or safety of another. (Civ. Code § 3294 (b)(1).) “Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard for that person’s rights. “‘Despicable conduct’ is conduct that is so vile, base or contemptible that it would be looked down on and despised by ordinary decent people.” (Scott v. Phoenix Schools, Inc. (2009) 175 Cal.App.4th 702, 715.) A motion to strike punitive damages is properly granted where a plaintiff does not state a prima facie claim for punitive damages, including allegations that defendant is guilty of oppression, fraud or malice.¿ (Turman¿v. Turning Point of Cent. California, Inc.¿(2010) 191 Cal.App.4th 53, 63; Cal. Civ. Code § 3294(a).)

The Court finds that there are insufficient allegations of malice and oppression, and further in light of the ruling on demurrer there are insufficient fraud allegations. There are no specific facts showing undue hardship or despicable behavior.

Based on the foregoing, the motion to strike as to Paragraphs 66, 63, and 71 are MOOT in light of the ruling on demurrer, and GRANTED as to the prayer for punitive damages with leave to amend.

VII. Conclusion

The Demurrer is SUSTAINED as to the third cause of action with leave to amend.

The Demurrer is SUSTAINED as to the fourth cause of action without leave to amend.

The motion to strike is MOOT in part and GRANTED with leave to amend in part.

Plaintiff is granted ten (10) days leave to amend. Plaintiff to give notice.

Case Number: 23STCV10614 Hearing Date: September 28, 2023 Dept: 73

H. Duane Weaver, et al. v. Lance Jay Robbins Paloma Partnership, et al. (23STCV10614)

Counsel for Plaintiff/opposing party: Lisa G. Salisbury (Salisbury Group, Inc.)

Counsel for Defendant/moving party: Thomas A. Nitti (Law Offices of Thomas A. Nitti)

Motion for Order Requiring plaintiffs to furnish a bond pursuant to cal. corp. code § 15910.06 (filed 06/26/2023)

TENTATIVE RULING

Defendants 7^th St. Associates, Inc., Lance Jay Robbins Paloma Partnership, and Lance Jay Robbin’s Motion for Order Requiring Plaintiffs to Furnish a Bond Pursuant to Cal. Corp. Code § 15910.06 is denied. Defendants do not carry their burden.

Discussion

On May 10, 2023, Plaintiffs H. Duane Weaver (“Weaver”) and Negative Asset Limited Partnership (“NALP”) (collectively, “Plaintiffs”) initiated this direct and derivative lawsuit against Lance Jay Robbins Paloma Partnership (“Paloma Partnership”), 7^th St. Associates, Inc. (“7^th St. Associates”) and Lance Jay Robbins (“Robbins”) (collectively, “Defendants”). The Verified Complaint asserts the following causes of action:

C/A 1: Breach of Fiduciary Duty (Derivative-Direct)

C/A 2: Breach of Contract (Derivative-Direct)

C/A 3: Abuse of Control (Derivative-Direct)

C/A 4: Appointment of Receiver (Derivative-Direct)

C/A 5: Declaratory Relief (Direct)

C/A 6: Accounting (Direct)

C/A 7: Violation of Inspection Rights (Direct)

C/A 8: Negligent Hiring, Supervision, and/or Retention (Derivative)

C/A 9: Negligence (Derivative)

Plaintiffs allege that they formed the Paloma Partnership with Robbins in the 1980s to acquire a 58-unit apartment building located at 15 Paloma Avenue, California 90291, which is referred to as the Ellison Apartments and it is a rent stabilized building. (Compl. ¶ 15.) Based on the building permits, the Ellison Apartments is recognized as an apartment building. (Id. at ¶ 25.)

On October 23, 2015, the partners of the Paloma Partnership executed an amended and restated agreement of limited partnership. (Id. at ¶ 16, Exh. 1.) Pursuant to this partnership agreement, 7^th St. Associates was appointed as the sole general partner, and Robbins was appointed as the managing partner. (Id. at ¶¶ 18-19.) Under Article 1, Section 1.4 of the partnership agreement, the purpose of the Paloma Partnership was to operate the Ellison Apartments for rental, to hold it for investment, and “to conduct all such other activities as may be necessary or incidental to, or desirable in connection with, the foregoing, including, without limitation engaging in any and all lawful business activities relating or incidental to these purposes. . . .” (Id. at ¶ 20.) As general partner, 7^th St. Associates had “the sole and exclusive right and power to manage and operate the business of the Partnership and to Manage and control the assets of the Partnership. . . .” (Id. at ¶ 21.) Also, as long as the proper avenues were taken, the partnership agreement afforded Robbins the ability to convert the Ellison Apartments into a lawful hotel. (Id. at ¶ 22.) On July 20, 2019, these partners executed an additional agreement titled “Amendment #1.” (Id. at ¶ 17, Exh. 2.)

Due to this mismanagement, the Paloma Partnership has received roughly “500 violations of various health, safety, and fire codes, along with numerous other violations of state and local laws.” (Id. at ¶ 24.) Rather than abide by the terms of the partnership agreement, Plaintiffs further allege that 7^th St. Associates and Robbins have engaged in gross mismanagement of the Paloma Partnership by allowing the Ellison Apartments to fall into disrepair and by causing the Paloma Partnership to be subject to city violation order, notices and various legal proceedings. (Id. at ¶ 23.) Also, despite being designated an apartment, 7^th St. Associates and Robbins have been improperly operating the Ellison Apartments as a hotel or short term rental, and this has caused the Paloma Partnership to be subject to various lawsuits. (Id. at ¶¶ 26-27.) Moreover, Plaintiffs argue that the Defendants have failed to make the required distributions under the partnership agreement, and that Robbins falsely claimed there to be “insufficient cash flow” as the reason for this failure, despite providing 7^th St. Associates with its monthly distribution. (Id. at ¶¶ 28-29.) Furthermore, Defendants have frustrated Plaintiffs attempts to inspect the Paloma Partnership’s books and records in connection with the calculation and payment of distributions. (Id. at ¶¶ 30-31.)

In connection with their derivative action, Plaintiffs further allege that making a formal demand on the general partner for Paloma Partnership to bring an action to enforce its right would be futile per Corporations Code § 15910.02 because informal negotiations have broken down with Robbins and 7^th St. Associate and have grown adversarial. (Id. at ¶ 35.)

On June 26, 2023, Defendants filed the subject motion for order requiring Plaintiffs to furnish bond pursuant to California Corporations Code § 15910.06, arguing:

· Defendants argue that there is a probability that there is no reasonable possibility that the prosecution of this action will benefit the Paloma Partnership or its partners because the Complaint is based on the false premise that usage of the Ellison Apartments for short-term rentals was improper. Rather, in a separate action (20STCV11588), the superior court found in Paloma Partnership’s favor that the practice of using the Ellison Apartments for short terms rentals was allowable. It is further noted that this decision was appealed at pending at the Second District Court of Appeal (case number B324441) (Motion at pg. 5.)

· Defendants also argue that the prosecution of this action will not benefit the partnership or its partners because Plaintiffs are in substantial breach of the amended to the partnership agreement, dated July 20, 2019, by failing to provide certain capital contributions in the amount of $518,043.54. (Motion at pg. 5.)

In opposition, Plaintiffs argues that:

· Defendants narrowly restricts the Complaint to the issue surrounding the operation of the Ellison Apartments as a short-term rental. However, the larger issue the formed the basis of the causes of action is that the Defendants have mismanagement the Paloma Partnership and drained its resources and allowed the property to fall into disrepair. (Opposition at pg. 6.)

· Also, there are still issues of habitability and Defendants’ failure to make required distributions to Plaintiffs. (Opposition at pg. 7.)

· Moreover, they argue that Defendants claim that Plaintiffs breached the amendment to the partnership is a red herring because Defendants’ purported breaches began in 2018, which was prior to the execution of the amendment. (Opposition at pp. 9-11.)

· Furthermore, any assertion of breach by the Plaintiffs is an issue in dispute, and such matters cannot support a motion to furnish bond. (Opposition at pg. 8, relying on Hale v. S. Cal. Ipa Medical Group (2001), 86 Cal. App. 4th 919, 923.)

In reply, Defendants contend issues of disrepair should not come at a surprise when the Ellison Apartments is 100 years old, and Defendants are unaware of any outstanding code violations. (Reply at pg. 2.) Moreover, Defendants assert that they prevailed in the appeal of the superior court’s decision in case no. 20STCV11588. (Ibid.)

JUDICIAL NOTICE

Defendants request the Court to take judicial notice of the following documents: (1) August 2, 2022 Court Order re: the Motion for Summary Judgment in LASC Case No. 20STCV11588, City of Los Angeles v. Lance Jay Robbins Paloma Partnership, et al.; and (2) the complaint submitted on June 20, 2023 in LASC Case No. To Be Assigned, 7^th St. Associates, Inc., et al. v. H. Duane Weaver, et al. The Court shall take judicial notice of the existence of these documents pursuant to Evidence Code § 452(d) but shall only take judicial notice of the truth of facts asserted in the order issued on August 2, 2022 in LASC Case no. 20STCV11588. (6 Witkin, California Procedure, 4th Edition, 2000, Proceedings Without Trial, § 210, p.622.)

ANALYSIS

A. Legal Standard for Motion to Furth Bond Pursuant to Corporations Code § 15910.06

Pursuant to Corporations Code §15910.06 it stated in pertinent part:

(a) In any derivative action, at any time within 30 days after service of summons upon the limited partnership or the general partner, the limited partnership or general partner may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish a bond as hereinafter provided. The motion shall be based upon one or both of the following grounds:

(1) That there is no reasonable possibility that the prosecution of the cause of action alleged in the complaint against the moving party will benefit the limited partnership or its partners.

. . .

(b) At the hearing upon any motion pursuant to subdivision (a) the court shall consider such evidence, written or oral, by witnesses or affidavit, as may be material (1) to the ground or grounds upon which the motion is based, or (2) to a determination of the probable reasonable expenses, including attorneys' fees, of the limited partnership and the general partner which will be incurred in defense of the action. If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the amount of the bond, not to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff for reasonable expenses, including attorneys fees, which may be incurred by the moving party and the limited partnership in connection with the action, including expenses for which the limited partnership may become liable pursuant to¿subdivision (c) of Section 15904.06. A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. If the court, upon motion, makes a determination that a bond shall be furnished by the plaintiff as to any one or more defendants, the action shall be dismissed as to the defendant or defendants, unless the bond required by the court has been furnished within such reasonable time as may be fixed by the court.

The burden of establishing that there is no reasonable possibility of the action benefiting the partnership and its shareholders¿is on the party moving for security. (See Burt v. Irvine Co. (1965) 237 Cal.App.2d 828, 868 (construing former Corporations Code §834).)

The moving party need not show that all causes of action would not benefit the corporation. (Bailey v. Fosca Oil Co. (1960) 180 Cal.App.2d 289, 295-297.) Otherwise, plaintiffs could include a large number of unjustified causes in a complaint containing one good one, and defeat the purposes of the statute. (Id. at 296-297.) Thus, a plaintiff may be required to post a bond based on a showing that any cause of action asserted in the complaint has no reasonable possibility of benefiting the partnership or its partners.

B. Merits

Here, in an effort to establish that there is no reasonable possibility this action will benefit the Paloma Partnership or its shareholders, Defendants present two arguments. The Court shall address each in turn. First, they contend that the litigations surrounding the usage of the Ellison Apartments as a short-term rental business is trending in their favor because the Superior Court in case no. 20STCV11588 ruled this usage was allowable pursuant to People v. Venice Suite, LLC (2021) 71 Cal.App.5th 715. (Motion at pg. 5; Exh. A.) Thus, even though there are disputes pending, Defendants assert that the remaining actions will also lean in their favor.

However, this argument misconstrues the scope of the complaint. The issue of whether conduct of the Defendants in using the Ellison Apartments as a short-term rental without proper approval and the ensuing lawsuits are just one theory of liability that supports the claims of breach of fiduciary duty, breach of contract, and others. For instance, even if the usage of the property as a hotel was proper, there is still a pending lawsuit by the City of Los Angeles alleging the Paloma Partnership owes the city $1.5 million in unpaid transit occupancy taxes, interest, and penalties. (Compl. ¶ 27(c).) Defendants fail to explain how the resolution in LASC No. 20STCV11588 would resolve this legal dispute. Thus, there is a basis to support that Defendants mismanaged the Paloma Property by forcing litigation that would harm the partnership. Also, the Complaint alleges breach on the grounds that Defendants have allowed the Ellison Apartments to fall into disrepair and have failed to make the required monthly distributions to Plaintiffs per the partnership agreement. (Compl. ¶¶ 24, 29-31.) Thus, while Defendants do not have to show that every cause of action raised in the Complaint will fall short of benefitting the Paloma Partnership and its shareholders, this argument fails show how any cause of action has no reasonable possibility of the action benefiting the partnership and its shareholder. As a result, the Court denies Defendants’ motion on this ground.

Next, Defendants contend that this action has no probability of benefiting the Paloma Partnership or its shareholders because Plaintiffs are in breach of the amendment to partnership agreement by failing to provide necessary capital contributions. (Motion at pg. 5; Exh. B.) In support of this argument, Defendants solely rely on a complaint that they have filed on June 20, 2023. (Exh. B.) However, reliance on this unverified complaint is sufficient for them to meet their burden in requiring Plaintiffs to post bond pursuant to Corporations Code § 15910.06. As Plaintiffs assert in their opposition, the issue of whether they in fact breached the amendment to the partnership agreement is in dispute. (Opposition at 8.) A complaint is not evidence, just allegations. Thus, because Defendants have failed to meet there burden here, this argument also fails.

Accordingly, the motion is denied. Defendants do not carry their burden. Defendants are ordered to give notice.