Judge Upinder S. Kalra, Case 19STCV06482 2023-02-21 Tentative Ruling

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1. An order granting summary judgment, or alternatively, summary adjudication, as to the 1^st, 3^rd, 4^th, 5^th, 6^th, and 7^th causes of action

1. Summary Adjudication is GRANTED, as to the 1^st, 3^rd, 4^th, 5^th, 6^th, and 7^th causes of action

On February 25, 2019, Plaintiff Christopher Fenton (“Plaintiff”) filed a complaint against Defendants DMG Entertainment, LLC; DMG Entertainment Holding, LLC; DMG Management Services, Inc.; New Asia Success Partners Limited; Healthy Soar Investment Limited; Daniel Mintz, Bing Wu, and Peter Xiao (“Defendants.”) The complaint alleged seven causes of action for: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) promissory estoppel; (4) promissory fraud; (5) constructive discharge; (6) retaliation in violation of Labor Code, § 1102.5; and (7) unfair business practices in violation of Business & Professions Code, §§ 17200, et seq. (the Unfair Competition Law, “UCL”).

Plaintiff alleges that he is the former President of DMG Entertainment Motion Picture Group and General Manager of DMG North America, and that he worked with the DMG entities in various senior level or representative capacities over the course of 17 years, until the end of his employment in or about February 2018. Plaintiff alleges that he originally began working with Defendants while working as a talent agent at William Morris, but that he left William Morris to establish his own entertainment company, H2F Entertainment, Inc. (“H2F”). According to Plaintiff, he continued to independently operate H2F with the DMG entities’ knowledge and approval, even after becoming the General Manager of DMG North America in January 2004.

Mintz allegedly approached Plaintiff about purchasing H2F in the summer of 2012 and hired Plaintiff to work full-time for DMG. During the purchase negotiations, Mintz and Wu allegedly promised to compensate Plaintiff with a bonus in the event the DMG entities made an initial public offering. Plaintiff specifically alleges that Mintz promised Plaintiff that DMG would “take care of him nicely in the event of an IPO” in consideration for Plaintiff’s agreement to sell H2F and to work full-time for the DMG entities.

The parties allegedly agreed to the terms of the purchase and the sale in two phases. First, Plaintiff allegedly entered into an “Agreement for Purchase of Sale and Stock” with the DMG entities through New Asia and DMG (Hong Kong) Group Ltd. (the “First Stock Purchase Agreement”) whereby the DMG entities allegedly agreed to purchase 49.9% of H2F from Plaintiff for $1,000,000. Second, Plaintiff allegedly entered into a second stock purchase agreement on November 18, 2013 through New Asia (the “Second Stock Purchase Agreement”) whereby he allegedly agreed to sell his remaining 50.1% interest in exchange for $4,020,000 to be paid over the course of five years. As part of the same transaction, Plaintiff also allegedly entered into a separate agreement with New Asia dated November 18, 2018 which set forth the terms of Plaintiff’s full-time employment with the DMG entities from 2003 to 2017 (the “Employment Agreement”).

In or around April 2014, The DMG entities allegedly announced they were planning a “back-door” IPO through a reverse merger agreement with an entity named Sichuan Gaojin Food (“SGF”). The DMG entities allegedly completed the IPO on or about November 14, 2014, when SGO issued 897.5 million shares to the owners of DMG, and the DMG entities’ shares allegedly closed with a first day value of roughly $3 billion United States dollars. Defendants allegedly did not compensate Plaintiff in connection with the IPO despite allegedly stating that they would on numerous occasions between 2015 and 2017.

According to Plaintiff, Defendants engaged in financially questionable activity after the IPO and he voiced his concerns to Mintz regarding the stock activity. Plaintiff further alleges that he demanded that Mintz honor the terms of the Employment Agreement and compensate him following the successful launch of the IPO, toward the end of 2017 when he was due to negotiate the terms of his ongoing employment with the DMG entities. Plaintiff’s negotiations with the DMG entities and Mintz allegedly made clear that the DMG entities would not pay Plaintiff bonuses for the IPO or his performance bonus, and Plaintiff alleges that he was compelled to resign on February 23, 2018.

On April 2, 2019, Defendants DMG Entertainment, LLC; DMG Entertainment Holding, LLC; DMG Management Services, Inc. filed a Demurrer with Motion to Strike.

On April 11, 2019, Defendants DMG Entertainment, LLC; DMG Entertainment Holding, LLC; DMG Management Services, Inc. filed a Cross-Complaint against Christopher Felton.

On May 24, 2019, Defendants DMG Entertainment, LLC; DMG Entertainment Holding, LLC; DMG Management Services, Inc. filed an Answer.

On June 5, 2019, Defendants DMG Entertainment, LLC; DMG Entertainment Holding, LLC; DMG Management Services, Inc. filed a First Amended Cross-Complaint against Christopher Felton.

The court declines to rule on the remaining objections, Nos. 106-164. (Code Civ. Proc., § 437c, subd. (q).)

The purpose of a motion for summary judgment or summary adjudication “is to provide courts with a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) “Code of Civil Procedure section 437c, subdivision (c), requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)

“On a motion for summary judgment, the initial burden is always on the moving party to make a prima facie showing that there are no triable issues of material fact.” (Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1519.) A defendant or cross-defendant moving for summary judgment or summary adjudication “has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action . . . cannot be established, or that there is a complete defense to the cause of action.” (Code Civ. Proc., § 437c, subd. (p)(2).) “Once the defendant or cross-defendant has met that burden, the burden shifts to the plaintiff or cross-complainant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subd. (p)(2).) “If the plaintiff cannot do so, summary judgment should be granted.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal.App.4th 463, 467.) “When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment.” (Id. at p. 467; Code Civ. Proc., § 437c, subd. (c).)

Defendant moves for summary adjudication as to the 1^st, 3^rd, 4^th, 5^th, 6^th, and 7^th causes of action.

“A cause of action for damages for breach of contract is comprised of the following elements: (1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.” (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4^th 1150, 1173.)

Defendant argues that the first cause of action fails because there was no contract between Plaintiff and Defendant Healthy Soar. The basis for the first cause of action is the “Other Arrangements Document.” However, Defendant Healthy Soar is not a party to that agreement, and even if it was enforceable against New Asia, “New Asia never assigned the document to Healthy Soar when such parties entered into the Assignment Agreement. (UMF 19-21, 25-29.)

Plaintiff argues that when Defendant Healthy Soar assumed the obligations of the Stock Purchase Agreement that included the provisions in the Other Arrangements document. (PUMF 164.) Additionally, Plaintiff argues that Defendant can be found liable in equity and tort for the promise to pay the IPO bonus because Defendant “was aware of the promise when it assumed responsibility for honoring Fenton’s employment contract.” (Opp. 8: 15-18.) Third, Plaintiff argues that Defendant is an alter ego of DMG and the ownership of H2F, Inc., was a “shell game.” (PUMF 165-168.) Fourth, Plaintiff argues that “shall be taken care of nicely in the event of an initial public offering of DMG” is not indefinite as it only has one meaning: Fenton is promise an IPO-related bonus. An expert indicated that IPO bonuses are reasonably expected. (UMF 206-210.) Plaintiff asserts that there is a triable issue of fact as to the interpretation of the “shall be taken care of nicely” would mean that Plaintiff would receive 10% of the gains from the IPO. (UMF 155.) Moreover, there is a triable issue of act that the condition precedent occurred, as both Mintz and Fenton used the word IPO when referring to the reverse merger after it occurred. (UMF 170, 177-178, 181-182, 186-190.) Even still, once DMG went public with the reverse merger, it would have been impossible for a “traditional” IPO. (Opp. 15: 27 – 16: 3.)

The Court finds that Defendants have met its burden that the first cause of action for breach of contract fails. Specifically, the evidence indicates that the Other Arrangements document was between DMG and Fenton. Here, however, the Other Arrangement Document and the Stock Purchase Agreement are not between the same parties, do not reference the specific agreement, were executed over a year and half apart. Thus, the Secondary Transaction Agreements (the March 2014 Share Purchase Agreement and April 2014 Assignment and Assumption Agreement) were distinct from the initial Stock Purchase Agreement executed in September 2012 between Plaintiff and New Asia.

However, Plaintiff has failed in his burden to point to triable issues of material fact to establish that the parties had a contract between them. Additionally, Plaintiff’s reliance on Civil Code § 1642 and Fillpoint, LLC is misplaced. Therefore, the Court determined that a stock purchase agreement and employment agreement were to be read together. The Court stated:

The two agreements were between the same parties; although the purchase agreement was between Handleman and Maas, and the employment agreement was between Crave and Maas, Crave was owned by Handleman after the acquisition. Both agreements referenced each other, and the employment agreement contained an integration clause providing that in the event of any conflicts between the terms of the two agreements, the terms of the purchase agreement would prevail.

Therefore, Motion for Summary Adjudication as to the First Cause of Action for Breach of Contract is GRANTED.

Defendant argues that Plaintiff cannot establish the elements of promissory estoppel because there are no facts alleged that Defendant made any representation to Plaintiff. (UMF 47-49.) Further, Defendant argues that liability cannot be imputed upon Healthy Soar because “Healthy Soar did not employ or otherwise control any of the DMG Defendants, and did not direct any of such Defendants to make any promises on Healthy Soar’s behalf.” (Motion 8: 4-7.)[1]

Defendant also argues that the cause of action for promissory fraud also fails for similar reasons as under promissory estoppel: Plaintiff cannot establish any promises were made by Defendant that Plaintiff would be compensated nicely. Defendant was also not a party to the expected IPO, and therefore, Plaintiff “also could not have justifiably relied upon any such “promises” had Healthy Soar even made them.” (Motion 9: 5-7.)

Plaintiff argues that both promissory estoppel and promissory fraud are triable. These claims are triable because Healthy Soar is an alter ego of Daniel Mintz and DMG. Therefore, because New Asia promised Plaintiff he would be “taken care of nicely,” it was reasonable to rely on those statements by Mintz. (PUMF 175.)

“The elements of a promissory estoppel claim are ‘(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.’” (Jones v. Wachovia Bank (2014) 230 Cal.App.4th 935, 945).

“[A] promise is an indispensable element of the doctrine of promissory estoppel. The cases are uniform in holding that this doctrine cannot be invoked and must be held inapplicable in the absence of a showing that a promise had been made upon which the complaining party relied to his prejudice.” (Garcia v. World Savings, FSB (2010) 183 Cal.App.4th 1031, 1044.) Moreover, “to be enforceable, a promise need only be “ ‘definite enough that a court can determine the scope of the duty[,] and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.” (Id. at 1045.)

“‘Promissory fraud’ is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. [Citation.] The elements of promissory fraud (i.e., of fraud or deceit based on a promise made without any intention of performing it) are (1) a promise made regarding a material fact without any intention of performing it; (2) the existence of the intent not to perform at the time the promise was made; (3) intent to deceive or induce the promisee to enter into a transaction; (4) reasonable reliance by the promisee; (5) nonperformance by the party making the promise; and (6) resulting damage to the promise.” (Behnke v. State Farm Gen. Ins. Co. (2011) 196 Cal.App.4th 1143, 1453, internal quotation marks omitted.)

The Court finds that Defendant has met their burden for both the third and fourth causes of action. Plaintiff has failed in his burden to point to triable issues of material fact to establish that Defendants made promises to Plaintiff. On the contrary, Plaintiff concedes that there was no representation made by Defendant, but rather were made by other Defendants.

In Automotriz Del Golfo, the Supreme Court provided the two requirements for alter ego: “It has been stated that the two requirements for application of this doctrine are (1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.” (Automotriz Del Golfo De California S. A. De C. V. v. Resnick (1957) 47 Cal.2d 792, 796.)

Defendant argues that alter ego doctrine fails because the corporate documents indicate that there is no sharing of individuals, Healthy Soar maintains its own corporate formalities, and Healthy Soar did not employ any individual defendants. (Motion 13: 4-12.) Plaintiff contends, without any evidence, that Healthy Soar’s ownership of H2F was a “shall game” and DMG control Healthy Soar “to the point of deciding Healthy Soar’s very existence.” (PUMF 167.)

As Defendant correctly argues, alter ego cannot be established as Plaintiff has failed in his burden to point to triable issues of material fact to establish that DMG Defendants had any control over Healthy Soar’s policies and practices.

Motion for Summary Adjudication as to the Third and Fourth Causes of Action is GRANTED.

“Constructive discharge occurs when the employer's conduct effectively forces an employee to resign.” (Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238, 1244.) “In order to establish a constructive discharge, an employee must plead and prove . . . that the employer either intentionally created or knowingly permitted working conditions that were so intolerable or aggravated at the time of the employee’s resignation that a reasonable employer would realize that a reasonable person in the employee’s position would be compelled to resign.” (Id. at 1251.)

Defendant argues that this cause of action fails because Healthy Soar never employed Plaintiff. There was no formal contract between the parties and Defendant did not exercise any control of Plaintiff. (UMF 86-89.)

Plaintiff argues that the evidence supports a “finding that Healthy Soar was an ego of DMG, and the evidence likewise supports that Healthy Soar assumed responsibility for Fenton’s employment contract.” (Opp. 16: 19-21.)

Here, the Court finds that Defendant has met its burden for two reasons. First, the evidence indicates that Plaintiff was not employed by Defendant. Second, under an alter ego theory, the Court previously ruled that Plaintiff’s cause of action against Defendants DMG Entertainment, LLC; DMG Entertainment Holding, LLC; DMG Management Services, Inc., Daniel Mintz and Bing Wu failed because the evidence indicated that Plaintiff’s contract term expired and was not renewed. Plaintiff has failed to provide any evidence or even argument that this cause of action for constructive discharge is viable.

Therefore, Motion for Summary Adjudication as to the Fifth Cause of Action for Constructive Discharge is GRANTED.

Labor Code § 1102.5 provides that an employer cannot enforce a rule that prevents an employee from providing information and cannot retaliate against an employee for providing information “to a government or law enforcement agency…if the employee has cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation.”

Defendant argues that this cause of action fails because this cause of action can only be brought by an employee against an employer, and the evidence indicates that Plaintiff was not an employee of Defendant. (UMF 108-111.)

Therefore, Motion for Summary Adjudication as to the Sixth Cause of Action for Retaliation is GRANTED.

Defendants argue that because Plaintiff cannot establish that the conduct would trigger any of Section § 17200; Defendant Healthy Soar did not engage in any conduct that was unlawful, unfair, or fraudulent. Plaintiff argues that “if a false promise to pay an IPO bonus is found to have been made, then a violation of the UCL can be found to have occurred.”

Business and Professions Code § 17200 prohibits any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising. The statute, “written in the disjunctive… establishes three varieties of unfair competition – acts or practices which are unlawful, or unfair, or fraudulent.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal. 4th 163, 180.) It “focuses solely on conduct and prohibits ‘anything that can properly be called a business practice and that at the same time is forbidden by law.’” (Albillo v. Intermodal Container Services, Inc. (2003) 114 Cal. App. 4th 190, 206.) The unlawful prong “‘borrows’ violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.” (Ibid.) Punitive and compensatory damages are not available under the UCL. (State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1110.)

Because the Court has determined that the above causes of action all fail, this cause of action also fails.

Therefore, Motion for Summary Adjudication as to the Seventh Cause of Action for Retaliation is GRANTED.

Summary Adjudication is GRANTED, as to the 1^st, 3^rd, 4^th, 5^th, 6^th, and 7^th causes of action

[1] Defendant also raises the argument that “nicely” is vague and uncertain. However, the Court has ruled on Defendants DMG Entertainment, LLC; DMG Entertainment Holding, LLC; DMG Management Services, Inc., Daniel Mintz and Bing Wu MSJ previously and indicated that this phrase was not vague, denying Defendants MSJ as to the first cause of action for breach of contract.