Judge Upinder S. Kalra, Case 22STCV09681 2023-01-04 Tentative Ruling

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CASE NAME: Los Magos Spirits International, Inc. v. Douglas S. Rohrer, et al.

2. An order striking portions of the FAC that pertain to permanent injunction and punitive damages

1. Demurrer as to the 1^st, 5^th, and 6^th causes of action is SUSTAINED, with leave to amend.

On March 18, 2022, Plaintiff Los Magos Spirits International, Inc. (“LSMI”) (“Plaintiff”) filed a complaint against Douglas S. Rohrer and the Aberdeen Law Group (“Defendants.”)

The operative FAC was filed on September 6, 2022. The FAC alleges six causes of action: (1) Permanent Injunction, (2) Conversion, (3) Interference with Contract, (4) Breach of Fiduciary Duty, (5) Malpractice, and (6) Defamation. Plaintiff alleges that Defendant Rohrer was removed the Board of Directors of LMSI. Despite being removed, Defendant Rohrer took unauthorized and illegal actions for the benefit of Defendants, including transferring money from a Chase Account and providing confidential information to investors. As a result, Plaintiff’s Chase Account has been frozen and an investor has withdrawn support.

The current Demurrer and Motion to Strike were filed by Douglas S. Rohrer on November 22, 2022. Plaintiff’s Opposition was filed on December 20, 2022. Defendant’s replies were filed on December 27, 2022.

On November 29, 2022, Defendant the Aberdeen Law Group filed a Joinder to Defendant’s Demurrer and Motion to Strike. [1]

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.)

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436(a).) The court may also 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. (Id., § 436(b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id. § 437.) “When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend.” (Vaccaro v. Kaiman (1998) 63 Cal.App.4th 761, 768.)

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 Julian K. Quattlebaum, IV, attached to the Motion to Strike, indicates that the parties met and conferred with Plaintiff’s counsel via telephone on October 4, 2022. However, the parties were unable to resolve the issue. Additionally, the parties agreed to extend the deadline for the Motion to Strike until November 23, 2022. (Dec. Quattlebaum ¶ 4.)

Defendants[2] demurrer on the grounds that all of the causes of action raised in the First Amended Complaint fail.

Defendant Rohrer[3] argues that the first cause of action fails because it is not actionable as Plaintiff has already “obtained emergency relief from this Court.” (Demurrer 111: 8-10; FAC ¶ 76.) Moreover, this cause of action is not actionable as there is no actual controversy since this is based on a fear that Defendant Rohrer might violate Plaintiff’s rights in the future. Plaintiff argues that Defendant Rohrer’s past “and likely current actions” are appropriate for a permanent injunction. Plaintiff also concedes that this is not a cause of action and will amend it to only be a part of the prayer for relief.

As Plaintiff concedes this is not a cause of action and agrees to amend, the cause of action fails.

Defendants argues that Plaintiff failed to plead sufficient facts for conversion because money cannot be the subject for a cause of action for conversion. (Demurer 11: 18-20, citing to McKell v. Washington Mutual, Inc. (2006) 142 Cal.app.4^th 1457, 1494.) Moreover, the FAC does not cite to a specific identifiable sum, first referring to a payment to ALG for $3,943.50 but later stating the damage is in excess of $50,000. (Demurrer 12: 17-20.) Plaintiff argues that the FAC is sufficient, as paragraph 82 states that Defendant “took dominion of LMSI’s Chase Account and then directed without authorization monies to be paid out from the Chase Account to himself…” and also identifies, in paragraph 85 the $3,943.50, as well as in paragraph 86, which states in excess of $50,000. (Opp. 6: 3-9.)

The elements of conversion are (1) plaintiff’s ownership or right to possession of property; (2) the defendant’s conversion by a wrongful act or right to disposition of property rights; and (3) damages. (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.)

“Money cannot be the subject of a cause of action for conversion unless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment….A “generalized claim for money [is] not actionable as conversion.” (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395.)

A review of the FAC indicates that Plaintiff has successfully plead a cause of action for conversion. As stated above, while money cannot ordinarily be the subject of conversion, there is an exception for a specific, identifiable sum. Plaintiff here has identified identify such specific identifiable sum—$3,943.50. The Court is not persuaded by Defendants argument that somehow this sum is uncertain because Plaintiff also alleged that Plaintiff suffered damages in excess of $50,000 because of the conversion. Defendant conflates the amount of funds that were the object of the conversion and consequential damages as a result of the unlawful conversion. ,Pleading consequential damages does not transformed the $3,940 allegedly converted into an uncertain amount.[4] Defendants’ defense that the charge was authorized also is not an appropriate attack of a pleading. That is a factual allegation that is left for summary adjudication or trial.

Defendant Rohrer[5] argues that this cause of action fails because Plaintiff did not allege that Defendant committed an independent wrong and Plaintiff did not allege any intentional acts. Defendant asserts that the contracts contained termination clauses, which makes them “terminable at-will.” (Demurrer 13: 8-10.) The FAC speculates that Defendant may have been advising investors. Moreover, the FAC does not allege any actual breach, failing to state that investors withdrew or canceled their investments. (Demurrer 14: 25 – 15: 1.) Plaintiff argues that the contracts do not contain any cancellation clauses. Moreover, the FAC sufficiently pleads the required elements: there were two contracts, Defendant’s knowledge, the acts of informing the investors, which then resulted in one investor withdrawing support for Plaintiff, and Plaintiff suffers and continues to suffer damage.

To prevail on a cause of action for intentional interference with contractual relations, a plaintiff must plead and prove (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the 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.” (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1148.)

A review of the complaint indicates that Plaintiff has sufficiently alleged a cause of action for intentional interference. As stated above, the Plaintiff alleges that there were two contracts: one with investors and one with Chase, (FAC ¶¶ 89-91,) Defendant knew of these contracts (FAC ¶¶ 89 & 94,) Defendant intentionally interfered with these contracts which caused Chase to freeze Plaintiff’s account and the investor to withdraw support (FAC ¶ 92 & 95,) Plaintiff was harmed (FAC ¶ 96,) and Defendant’s conduct was a substantial factor and suffers and continues to suffer harm, exceeding $800,000 (FAC ¶ 97 & 98.) The Court is not impressed with Defendant’s contention that the contracts were terminable at will. Again, this is a factual defense that is not appropriately raised in attacking the pleadings at the Demurrer stage.

Defendant argues that the FAC fails to sufficiently allege a cause of action for breach of fiduciary duty of confidentiality because the FAC speculates that Defendants disclosed privileged information, as the issue involved acts of the shareholders, not communications between a client and lawyer. (Demurrer 15: 23-27.) Additionally, the FAC does not plead causation of damages. Plaintiff argues that the FAC sufficiently alleges that there was a breach when confidential information was disclosed to Plaintiff’s investors. (FAC ¶ 106.)

“The elements of a claim for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) its breach, and (3) damage proximately caused by that breach.” (O'Neal v. Stanislaus County Employees' Retirement Assn. (2017) 8 Cal.App.5th 1184, 1215.)

A review of the complaint indicates that Plaintiff has sufficiently alleged a breach of fiduciary duty. The FAC alleges that in-house-counsel had a fiduciary relationship with Plaintiff. (FAC ¶¶ 100-101.) That duty was breached when confidential information was disclosed to investors. (FAC ¶ 102, Ex. 6 and 9.) Lastly, there were damages from that breach demonstrated by an investor withdrawing investments. (FAC ¶ 104.)

Defendants argue that the FAC fails to allege a cause of action for malpractice. First, the FAC refers to alleged securities violations, but this is not a viable claim as it is for damages that might occur, but have not yet occurred. (Demurrer 16: 20-23, citing to Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1510.) Second, an employer cannot sue its in-house counsel. Plaintiff agrees that this cause of action will only be against ALG, and not against Defendant Rohrer. As to ALG, Plaintiff argues that the FAC sufficieintly alleges that the malpractice claim is based on past securities violations due to ALG’s legal advice. (FAC ¶¶ 114 and 117.)

“In order to establish a cause of action for legal malpractice the plaintiff must demonstrate: (1) breach of the attorney's duty to use such skill, prudence, and diligence as other members of the profession commonly possess and exercise; (2) a proximate causal connection between the negligent conduct and the resulting injury; and (3) actual loss or damage resulting from the negligence.” (Carlton v. Quint (2000) 77 Cal.App.4th 690, 699.)

A review of the complaint indicates that Plaintiff has failed to allege sufficient facts as to ALG’s alleged malpractice. The only reference is paragraph 114 which states “to the extent there are any securities violations, such violations were solely the responsibility of Rohrer as Chief Legal Counsel, and ALG, as outside counsel.” This is a conclusory allegation, and contains no supporting factual allegations.

Defendant Rohrer argues that the cause of action for defamation fails because there are no allegations against Plaintiff, but against LMSI’s board and officers. Additionally, there are not indications of what statement was made that was defamatory. Moreover, the allegations in the FAC state that Defendant Rohrer “painted LMSI’s management as acting in bad faith…” implies it was an opinion, which are constitutionally protected. Plaintiff asserts that the cause of action is sufficient because corporate entities can bring actions for defamation. Additionally, the FAC states the defamatory statements, which related to Plaintiff’s business, like “given the acts of bad faith, such as changing the corporation documents of the company…” (FAC ¶ 120.)

“Defamation “involves (a) a publication that is (b) false, (c) defamatory, and (d) unprivileged, and that (e) has a natural tendency to injure or that causes special damage.” (Price v. Operating Engineers Local Union No. 3 (2011) 195 Cal.App.4th 962, 970.) “While it is true that pure expressions of opinion are not actionable, “[t]hat does not mean that statements of opinion enjoy blanket protection. To the contrary, where an expression of opinion implies a false assertion of fact, the opinion can constitute actionable defamation.” (Yelp Inc. v. Superior Court (2017) 17 Cal.App.5th 1, 16.)

Further, “the ‘crucial question of whether challenged statements convey the requisite factual imputation is ordinarily a question of law for the court. Only once the court has determined that a statement is reasonably susceptible to such a defamatory interpretation does it become a question for the trier of fact whether or not it was so understood. The question is ‘ “whether a reasonable fact finder could conclude the published statement declares or implies a provably false assertion of fact. ...” (Sanders v. Walsh (2013) 219 Cal.App.4th 855, 862–863.)

A review of the complaint indicates that Plaintiff has failed to allege a defamatory statement which is attributed to Defendants. The statements in the FAC that are alleged defamatory are opinion. Specifically, the highlighted portion in paragraph 120, from the investor letter, indicates that the investor, “in my opinion indicate acts of bad faith for the shareholders and for the company as a whole.” (FAC ¶ 120.) As stated above, statements of opinion are not actionable. Additionally, this statement does not imply a “false assertion of fact.” (Yelp, supra, 17 Cal.App.5th at 16.)

1. Page 17, line 17-18: “First Cause of Action Permanent Injunction (Against Defendant Rohrer)

3. Page 21, paragraph 107: In making these disclosures, Rohrer acted with malice, oppression, or fraud sufficient to warrant punitive damages”

Defendant Rohrer[7] argues that the request for injunctive relief fails because there is no basis to seek injunctive relief.[8] Defendant asserts that there are numerous remedies available and Plaintiff has failed to allege conduct that it seeks to enjoin that is likely to occur in the future. Plaintiff argues that even though permanent injunction is not a cause of action, it does not render the prayer for such an injunction moot as it is available as a remedy for the remaining causes of action. (Opp. to MTS 3: 23-26.)

“A permanent injunction is an equitable remedy for certain torts or wrongful acts of a defendant where a damage remedy is inadequate. A permanent injunction is a determination on the merits that a plaintiff has prevailed on a cause of action for tort or other wrongful act against a defendant and that equitable relief is appropriate.” (Art Movers, Inc. v. Ni West, Inc. (1992) 3 Cal.App.4th 640, 646, 4 Cal.Rptr.2d 689.)Civil Code section 3422 allows the court to grant a permanent injunction “to prevent the breach of an obligation existing in favor of the applicant: [¶] 1. Where pecuniary compensation would not afford adequate relief; [¶] 2. Where it would be extremely difficult to ascertain the amount of compensation [that] would afford adequate relief; [¶] 3. Where the restraint is necessary to prevent a multiplicity of judicial proceedings; or, [¶] 4. Where the obligation arises from a trust. The first two grounds ‘embody the requirement that to obtain an injunction a plaintiff ordinarily must show that the defendant's wrongful acts threaten to cause irreparable injury, meaning injury that cannot adequately be compensated in damages.’” (Grail Semiconductor, Inc. v. Mitsubishi Electric & Electronics USA, Inc. (2014) 225 Cal.App.4th 786, 800.)

After a review of the FAC, Plaintiff’s prayer for permanent injunction fails. Nowhere in the FAC does Plaintiff indicate that there are no other available remedies. Nor does the FAC indicate that Defendant Rohrer is continuing to breach an obligation. As stated above, the Plaintiff must demonstrate that the wrongful acts “threaten to cause irreparable harm.” Plaintiff’s FAC has failed to provide any factual basis to indicate that Defendant has a potential to harm Plaintiff.

Defendants argue that punitive damages are not appropriate for the current matter. The cause of action for breach of fiduciary duty does not allege facts that would rise to the level of punitive damages. Plaintiff argues that as to the fourth cause of action, there are sufficient facts to allege punitive damages. Specifically, the facts that allow for punitive damages are that Defendant Rohrer was aware of the actions taken against him, namely his termination, disclosed privileged information to investors, and transferred an unauthorized amount of money for Defendants’ benefit.

Plaintiff also argues that the sixth cause of action asserts punitive damages, specifically paragraph 126, which states “Rohrer acted with malice, oppression, or fraud in disparaging LMSI’s management with the clear goal of causing investors to withdraw their investments.” However, in reply, Defendants argue that paragraph 126 never seeks or references punitive damages. Still, Defendants request the Court strike paragraph 126, as Defendant also requested that punitive damages be stricken from the Prayer for Relief, which demonstrates Defendants “moved to strike all references to punitive damages therein.” (Reply 4: 15-16.)

To obtain punitive damages, a plaintiff must plead sufficient facts in support of punitive damages. (See Hilliard v. A.H. Robins Co. (1983) 148 Cal.App.3d 374, 391-92.) In addition, punitive damages are allowed only where “it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” (Civ. Code, § 3294, subd. (a).) Courts have viewed despicable conduct as conduct “so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people. (Scott v. Phoenix Schools, Inc., (2009) 175 Cal.App.4th 702, 715.) Further, Civil Code § 3294(c) provides the definition of malice, oppression, and fraud. Malice is “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” Oppression is “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.” 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.”

After a review of the complaint, the Court finds that the allegations do not rise to those required for punitive damages. While the facts as alleged could be viewed as very wrong, these facts do not rise to the type of conduct that would “so vile, base contemptible, miserable, wretched or loathsome.” (Scott, supra, 175 Cal.App.4^th at 715.)

Leave to amend should be liberally granted if there is a reasonable possibility an amendment could cure the defect. (County of Santa Clara v. Superior Court (2022) 77 Cal.App.5th 1018,1035.) The Plaintiff has the burden of demonstrating that leave to amend should be granted, and that the defects can be cured by amendment. (“Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.” Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) It is likely that Plaintiff can amend the FAC to allege more specific facts rather than conclusory allegations.

1. Demurrer as to the 1^st, 5^th, and 6^th causes of action is SUSTAINED, with leave to amend.

[1]A common mistake made by parties in civil litigation is to simply file a notice of joinder in the hopes that that party can simply “piggyback” on the initial moving party’s pleadings. Of course, filing a notice of joinder is certainly allowed. However, the applicable law still requires that any party attempting to join a pending motion still must file a memorandum of points and authorities, with an appropriate analysis as to the reasons why the same relief should be granted to the joining party. Defendant Aberdeen Law Group has not included their own separate and required memorandum of points and authorities, containing an analysis from their respective standpoint. As such, there is no legal basis on which the Court is to conclude that it is similarly situated to the demurring party with respect to the issues raised in that demurrer. Accordingly, the joinder is DENIED. However, since the Court has granted Plaintiff leave to amend, all defendants may file a responsive pleading to any future SAC.

[2] Defendant Aberdeen Law Group filed a joinder on November 29, 2022. It states that that the grounds for the joinder are “fully set forth in Douglas S. Rohrer’s supporting Memoranda of Points and Authorities and all other supporting papers which are incorporated herein by reference as though fully set forth.” Further, the grounds for the demurrer and Motion to Strike “apply equally to joining defendant.”

[3] This cause of action only pertains to Defendant Rohrer.

[4] While this cause of action for conversion may have survived a Demurrer, there is an open question whether Plaintiff has sufficiently plead its entitlement to consequential damages.

[5] This cause of action is asserted only against Defendant Rohrer.

[6] This cause of action is only against Defendant Rohrer.

[7] This is only as to Defendant Rohrer.

[8] Defendant also argues that the first cause of action is improperly pleaded, but the Court sustained the first cause of action. Thus, Portion 1 is MOOT.