Judge Upinder S. Kalra, Case Number: 21STCV33286, Date: 2023-08-21 Tentative Ruling

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On September 9, 2021, Plaintiff Seonah Jo (“Plaintiff”) filed a complaint against Defendant Jinyeung Choi (“Defendant.”) The complaint alleged four causes of action: (1) Breach of Contract, (2) Breach of Fiduciary Duty, (3) Unjust Enrichment, and (4) Declaratory Relief. The complaint alleges that the parties entered into an oral agreement to operate a business partnership regarding the operation of Los Coyotes Veterinary Practice, P.C., agreeing to work equal time during the week, which was later reduced due to the Covid-19 pandemic. Plaintiff argues that Defendant refused to work the agreed upon hours per week. After an appraisal determined gthe value of Los Coyotes, the parties provided various offers to buy out the other party, but the parties have reached a deadlock. Plaintiff also alleges that Defendant received a third-party offer to merge Los Coyotes with the third party.

On November 1, 2021, Defendant filed a Demurrer with Motion to Strike which was OVERRULED.

On February 3, 2023, Plaintiff filed a Motion for Leave to Amend the Complaint, which was GRANTED.

On May 3, 2023, Defendant Jinyeung Choi filed a Demurrer. Plaintiff’s Opposition was filed on July 11, 2023. Defendant’s Reply was filed on August 14, 2023.

On May 8, 2023, Defendant Los Coyotes Veterinary Practice filed a Demurrer and Joinder to Defendant Choi’s demurrer.

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. In a demurrer proceeding, the 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 pleadings alone and not the evidence or other extrinsic matters. …. The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn 147 Cal.App.4th at 747.)

Prior to filing a demurrer, the demurring party is required to satisfy their meet and confer obligations pursuant to Code of Civ. Proc. §430.41, and demonstrate that they so satisfied their meet and confer obligation by submitting a declaration pursuant to Code of Civ. Proc. §430.41(a)(2) & (3). The Declaration of Kyle Kubisch, attached to the Demurrer, indicates that the parties met and conferred via telephone on April 28, 2023. However, the parties were unable to resolve the issues.

Defendant Choi demurs on the grounds that the fifth cause of action fails to state facts to constitute a cause of action.[1] Specifically, Defendant argues that Plaintiff did not identify which prong of Corporations Code § 1800(b) this action is premised. Moreover, the FAC only provides two paragraphs of factual support, but these paragraphs are conclusory.

Plaintiff argues that the FAC sufficiently alleges a cause of action for dissolution. First, the Demurrer indicates that Defendant knows that this is a dissolution claim and wants to do a section 2000 buyout. Second, the FAC contains sufficient factual allegations. Paragraphs 1, 2, and 8 allege ownership, directorship, and officer status, while paragraph 53 indicates that plaintiff is a director who seeks to dissolve the partnership due to disagreement as to how the partnership is managed.

(a) A verified complaint for involuntary dissolution of a corporation on any one or more of the grounds specified in subdivision (b) may be filed in the superior court of the proper county by any of the following persons:

(2) A shareholder or shareholders who hold shares representing not less than 33 ¿ percent of (i) the total number of outstanding shares (assuming conversion of any preferred shares convertible into common shares) or (ii) the outstanding common shares or (iii) the equity of the corporation, exclusive in each case of shares owned by persons who have personally participated in any of the transactions enumerated in paragraph (4) of subdivision (b), or any shareholder or shareholders of a close corporation.

(3) Any shareholder if the ground for dissolution is that the period for which the corporation was formed has terminated without extension thereof.

(2) The corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its business can no longer be conducted to advantage or so that there is danger that its property and business will be impaired or lost, and the holders of the voting shares of the corporation are so divided into factions that they cannot elect a board consisting of an uneven number.

(3) There is internal dissension and two or more factions of shareholders in the corporation are so deadlocked that its business can no longer be conducted with advantage to its shareholders or the shareholders have failed at two consecutive annual meetings at which all voting power was exercised, to elect successors to directors whose terms have expired or would have expired upon election of their successors.

(4) Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers.

(5) In the case of any corporation with 35 or fewer shareholders (determined as provided in Section 605), liquidation is reasonably necessary for the protection of the rights or interests of the complaining shareholder or shareholders.

(6) The period for which the corporation was formed has terminated without extension of such period.

Corporations Code § 16803 states: (a) Except as otherwise provided in subdivision (b), relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this chapter governs relations among the partners and between the partners and the partnership.

(8) Vary the requirement to wind up the partnership business in cases specified in paragraph (4), (5), or (6) of Section 16801.

Corporations Code § 16801 states: “A partnership is dissolved, and its business shall be wound up, only upon the occurrence of any of the following events:

(5) On application by a partner, a judicial determination that any of the following apply:

(A) The economic purpose of the partnership is likely to be unreasonably frustrated.

(B) Another partner has engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with that partner.

(C) It is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement.

Here, the Court finds that the FAC sufficiently alleges a cause of action for dissolution. Paragraph 1 and 2 identifies that the parties are 50% equity shareholders of Los Coyotes. (FAC ¶¶ 1-2.) Paragraph 8 states that the parties entered a business partnership, which included terms such as having equal decision-making power and have either a 50/50 distribution or one party would by the other party’s share. (FAC ¶ 8.) Paragraphs 10-12 indicate that the Defendant significantly reduced work hours, which would significantly reduce production. In Paragraph 52, Plaintiff sufficiently alleges that dissolution is proper because of “unreasonable frustration of economic purpose.” In paragraph 53, the FAC states that the partners cannot agree as to management of its affairs. As indicated above, Corporations Code § 16803(b)(8) states that the partnership may not “Vary the requirement to wind up the partnership business in cases specified in paragraph (4), (5), or (6) of Section 16801.” Section 16801(5) states that a partnership is dissolved when judicial determination that either the economic purpose is frustrated, one partner has engaged in conduct that makes it “not reasonably practicable to carry on the business.” Here, the facts as alleged indicate that the conduct, like reducing hours, would “frustrated the economic purpose” of the business.

[1] In Defendant Los Coyotes Demurrer, Defendant joins in and incorporates the arguments that were raised in Defendant Choi’s demurrer. Additionally, Defendant Los Coyotes argues that the FAC does not contain sufficient factual allegations, but rather legal conclusions. Thus, there are no facts to support the cause of action.