Judge: Upinder S. Kalra, Case: 22STCV11220, Date: 2023-04-19 Tentative Ruling

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Case Number: 22STCV11220    Hearing Date: April 19, 2023    Dept: 51

Tentative Ruling

 

Judge Upinder S. Kalra, Department 51

 

HEARING DATE:   April 19, 2023                                    

 

CASE NAME:            D-MAS, LLC, et al. v. AFI Financial, Inc., et al

 

CASE NO.:                22STCV11220           

 

DEMURRER WITH MOTION TO STRIKE

 

MOVING PARTY: Defendants AFI Financial Inc., Igor Okhman, Erina Gilerman and Larissa Shor

 

RESPONDING PARTY(S): Plaintiffs D-MAS, LLC, Israel Yagudaev, and Mairam Yagudaev

 

REQUESTED RELIEF:

 

1.      An order sustaining the demurrer to the SAC as to causes of action 4 through 10

2.      An order striking various portions of the SAC relating to derivative actions and punitive damages

TENTATIVE RULING:

 

1.      Demurrer is SUSTAINED, with leave to amend, as to causes of action 4 through 8

2.      Demurrer is OVERRULED, as to causes of action 9-10

3.      Motion to Strike is GRANTED.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

 

On April 4, 2022, Plaintiffs D-Mas, LLC, Israel Yagudaev, and Mairam Yagudaev (Plaintiffs) filed a complaint against Defendants AFI Financial Inc., Alexander Gudis, Igor Okhman, Erina Gilerman, Galina Blank, Larissa (Lora) Shor, Vladimir Keslin (Defendants.) The complaint alleges eleven causes of action based on breach of contract, fraud, conspiracy, and professional negligence. Plaintiffs allege that they loaned Defendant AFI $2.5 million. However, Defendant AFI began defaulting on the terms of the Promissory Note.

 

On April 6, 2022, Plaintiffs filed a First Amended Complaint.

 

On July 5, 2022, Defendants filed a Demurrer and Motion to Strike, which was SUSTAINED, with leave to amend.

 

On January 4, 2023, Plaintiffs filed a Second Amended Complaint.

 

On February 7, 2023, Defendants AFI Financial Inc., Igor Okhman, Erina Gilerman and Larissa Shor filed a Demurrer with Motion to Strike. Plaintiff’s Opposition was filed on April 6, 2023. Defendants’ Reply was filed on April 12, 2023.

 

LEGAL STANDARD

 

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.)

 

Motion to Strike

 

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.)

 

Meet and Confer:

 

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). 

 

PROCEDURAL ISSUES:

 

Defendant moves to strike the entire SAC pursuant to CCP § 581(f)(2), as Plaintiffs’ SAC is untimely. Plaintiffs were given 30 days to file an amended complaint. The Court sustained the demurrer on November 17th, and served a notice of the ruling the same day electronically. Plaintiffs’ SAC was due on December 20th. However, the SAC was filed on January 4th, 2023, and Plaintiffs did not request or obtain leave to file the pleading. Thus, the Court may dismiss the pleading.

 

Plaintiffs that the SAC should not be stricken because when the demurrer was entered on November 17th, the hearing should not have proceeded because Gudis had filed bankruptcy on October 7, 2022, and the stay was in effect. The Notice of the Stay was not filed until November 28, 2022. Therefore, Plaintiffs had to review the bankruptcy pleadings to understand how the stay affected amending the complaint. After, Plaintiffs’ Counsel dealt with a bout of Covid and thus, filed the SAC on January 4, 2023. Moreover, there were various court holidays between the notice of the demurrer and the filing of the SAC, and Defendant did not suffer any prejudice. Further, Plaintiffs argue that the Court may allow an amendment at its discretion.

 

The Court will use its discretion to hear the matter.

 

Request for Judicial Notice:

 

The Court may take judicial notice of the existence of the records, but not the truth of matters asserted in such records. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565). As a result, although the court may take judicial notice that the documents exists, the Court may not take judicial notice of the truth of the facts in the documents.

 

            Additionally, Evidence Code only allows the Court to take judicial notice of certain types of documents. The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[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, subds. (c), (d), and (h).) The Evidence Code does not allow the Court to take judicial notice of discovery responses or parts of cases, such as depositions.

 

Plaintiffs request the following documents be judicially noticed:

 

1.      Exhibit A is a true correct copy of Alexander Gudis’s (“Gudis”) declaration which was filed with the bankruptcy court on October 20, 2022.

2.      Exhibit B is a true correct copy of Gudis’s declaration which was filed with the bankruptcy court on November 1, 2022.

3.      Exhibit C is a true correct copy of Larisa Shor’s (“Shor”) declaration which was filed with the bankruptcy court on November 13, 2022.

4.      Exhibit D is a true correct copy of the Articles of Incorporation of Pulsar Motors, Inc.

5.      Exhibit E is a true correct copy of the complaint in the matter of Santos v. AFI Financial, Inc. (LACSC Case No.: 19STCV43327.)

6.      Exhibit F is a true correct copy of Gudis’s bankrupt petition which was filed with the bankruptcy court on October 7, 2022.

7.      Exhibit G is a true correct copy of Gudis’s Notice of Stay of Proceedings which was filed with this Court on November 28, 2022, almost two (2) months after Gudis had actually filed his bankruptcy.

Defendants request the following documents be judicially noticed:

 

1.      Declaration of Israel Yagudaev in Support of Plaintiffs’ Application for Writ of Attachment and Right to Attach Orders and Exhibits Thereto filed on May 19, 2022 in D-MAS LLC, et al. vs. AFI Financial Inc., et al., Los Angeles Superior Court Case No. 22STCV112200.

2.      Notice of Ruling Denying Plaintiffs’ Application for Writ of Attachment and Right to Attach Orders filed on June 14, 2022 in in D-MAS LLC, et al. vs. AFI Financial Inc., et al., Los Angeles Superior Court Case No. 22STCV112200.

3.      Notice of Ruling Sustaining Demurrer to Plaintiffs’ First Amended Complaint filed on November 17, 2022 in in D-MAS LLC, et al. vs. AFI Financial Inc., et al., Los Angeles Superior Court Case No. 22STCV112200.

The Request for Judicial Notice is GRANTED, as to both Plaintiffs’ requests and Defendants’ requests.

 

ANALYSIS:

 

Fourth Cause of Action: Breach of Contract, the Memorandum of Understanding

 

            Defendant argues that this cause of action should be dismissed. This cause of action is brought against Gudis, Okhman, and Gilerman. However, Defendant argues that these individuals are not parties to the MOU and Gilerman did not sign it. The only reference to Defendants other than AFI is a reference to AFI’s principals. Moreover, Plaintiff has not identified any improper transaction or account, have not identified how this alleged transaction injured them, and the same amount of damages are sought as in the first cause of action - $2,500,000.

 

            Plaintiffs argue that while it is “not personally by Okhman and Gilerman, it is clear by the language therein that the MOU intended to bind officers, shareholders, and principals of AFI.” (Opp. 8: 6-8.) Plaintiff then cites to Dryer v. Los Angeles Rams, for the contention that courts have found that third party non-signatory beneficiaries are bound by arbitration because they benefit from the same. Here, Plaintiffs assert that because third party beneficiary principles do not require the person to be benefited named in the contact, this cause of action is sufficient. Lastly, Plaintiffs state that it was recently discovered that “Okhman was a principal of a competing company by the name of Pulsar Motors, Inc., and that at least $185,000 of AFI’s money was transferred to Pulsar Motors, Inc. between 2020 and 2021.”

 

“To establish a cause of action for breach of contract, the plaintiff must plead and prove (1) the existence of the contract, (2) the plaintiff’s performance or excuse for nonperformance, (3) the defendant’s breach, and (4) resulting damages to the plaintiff.  [Citation.]”  (Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 97-98.)

 

            First, the Court notes, and as Defendants argue in Reply, the reference to the $185,000 was not alleged in the SAC and therefore will not be utilized in the Court’s analysis. Second, the Court finds that this cause of action has failed to establish how Plaintiffs were injured. The SAC merely states that “Plaintiffs have suffered and seek damages in an amount that exceeds the $2,500,000 according to proof at trial.” How were Plaintiffs injured? The Court will not and cannot assume that Plaintiffs were injured financially. Thus, Plaintiffs have failed to allege sufficient facts to allow the Court as well as Defendants to determine how they were injured.

 

            Demurrer as to the Fourth Cause of Action is SUSTAINED.

 

Fifth Cause of Action: Open Book Account

 

            Defendant argue that this cause of action should be dismissed as to Defendant Okhman because Plaintiffs have failed to allege any financial transactions with Okhman directly. The only reference to Okhman is a guaranty, which cannot constitute “financial transactions” involving debits and debits.

 

Plaintiffs argue that this cause of action is sufficient because, while it might not state a cause of action for open book, it is sufficient for a common count cause of action.

 

The elements of an open book account cause of action are: “1. That [plaintiff] and [defendant] had financial transactions ... ; [¶] 2. That [plaintiff] ... kept [an] account of the debits and credits involved in the transactions; [¶] 3. That [defendant] owes [plaintiff] money on the account; and [¶] 4. The amount of money that [defendant] owes [plaintiff].” (State Compensation Insurance Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422, 449.)

 

“The only essential allegations of a common count are “(1) the statement of indebtedness in a certain sum, (2) the consideration, i.e., goods sold, work done, etc., and (3) nonpayment.” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460.)

 

            After a review of the SAC, the Court finds that the cause of action for open book is not sufficient. “Civil Code section 2787 defines a guarantor as “one who promises to answer for the debt, default, or miscarriage of another....” (California Bank & Trust v. Lawlor (2013) 222 Cal.App.4th 625, 632, emphasis in original.) Here, Okhman did sign a guaranty but that would meet that in the even of a debt or default of another, Okhman would pay. Thus, there was no transaction between Plaintiffs and Okhman directly. For an open book account, the first element is that the plaintiff and defect had “financial transactions.” Therefore, since this transaction was not directly between Plaintiffs and Defendant Okhman, this cause of action fails.

 

            Demurrer as to the Fifth Cause of Action is SUSTAINED.

 

Sixth Cause of Action: Fraud, Fraud in the Inducement, and Concealment

 

            Defendant argues that this cause of action fails. Previous complaints alleged fraud against Gudis and Okhman, but the SAC now adds Gilerman and Shor, but does not explain why these two were added. As to Gilerman, there are no allegations that she spoke with Plaintiffs, signed any documents; paragraph 79 only states that Gudis made representations as the professed agent for Gilerman. As for Shor, the allegations are that she informed Plaintiff of a business opportunity with AFI and intended to invest, which Defendants argue is insufficient for fraud. Defendants further argue that Plaintiffs make conclusory allegations about giving loans, but provide no facts about improper transactions. Additionally, the SAC does not allege any intent to not make interest payments. The added allegations still do not meet the specificity requirements for fraud causes of action.

 

            Plaintiffs argue that the fraud cause of action is sufficient. As to Gilerman, Gudis signed his Guaranty and verbally professed he was Gilerman’s agent. As to Shor, the SAC states that Shor and Gudis represented that Gudis was solvent, rich, and owned real property. The SAC states that Defendants, in order to induce Plaintiffs to provide $2.5 million dollars, made representations between September 2019 and December 2019 promises that that the money would be used for AFI and Gudis and Okhman would personally manange it. (SAC ¶ 29.)

 

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

 

“In California, fraud must be pled specifically; general and conclusory allegations do not suffice…this particularity requirements necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tenders.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)“[W]hen averments of fraud are made, the circumstances constituting the alleged fraud must be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” (Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003) (internal quotations and citations omitted).

 

            After a review of the SAC, the Court finds that the fraud cause of action is not sufficiently pleaded. In paragraph 79 of the SAC, Plaintiffs stated that Gudis on behalf of himself, as the professed agent for Gilerman, and Okhman on behalf of themselves and AFI…made promises to Plaintiffs that Gudis, Gilerman, Okhman and AFI…” Later, in paragraph 81, Plaintiffs states that “AFI, Gudis, Gilerman, Blank, and Okhman, between communications between September 1, 2019 and December 12, 2019 made verbal and written (see PSA) representations to| Plaintiffs that there were no actions, suits or proceedings pending or threatened against AFI which…” Again, Plaintiffs lump all the Defendants together, and not specify which specific Defendant made which specific representation. All of the Defendants made the same representations? Were they made together? Separately? And to all Plaintiffs? At the same time? Plaintiffs do not provide the specific facts, which is required for fraud causes o action.

 

            Demurrer as to the Sixth Cause of Action is SUSTAINED.

 

Seventh and Eighth Causes of Action: Interference with Contractual Relations and Intentional Interference with Prospective Economic Advantage

 

Defendants argue that these two causes of action fail because Plaintiffs allegations that they are third party beneficiaries, but third party beneficiary is not a party to a contract. (Demurrer 17: 9-12, citing Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 944 (third party beneficiary “is not a contracting party”).) Even still, Plaintiff has demonstrated a contract between plaintiff and a third party. Moreover, Plaintiffs have failed to sufficient allege any of the elements for the interference causes of action. First, they have not identified a contract or economic relationship, have failed to identify Defendant’s knowledge of these contracts, have not stated facts that would be considered an intentional act designed to disrupt the contract, and have failed to show any contract that was disrupted and any resulting damage.

 

Plaintiff argues that case law indicates that an interference claim “does not require a showing independently wrongful conduct. Here, paragraph 94 states that defendants “diverted income to AFI by sending funds that third parties contractually owed to AFI to third party entities belonging to the individual defendants and redirecting business to these entities.” (Opp. 15: 1-3.)

 

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.)

 

For intentional interference, the plaintiff must plead and prove: “ ‘ “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship… (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Golden Eagle Land Investment, L.P. v. Rancho Santa Fe Assn. (2018) 19 Cal.App.5th 399, 429–430 [227 Cal.Rptr.3d 903, 927, 19 Cal.App.5th 399, 429–430]

 

A review of the SAC indicates that Plaintiff has failed to establish either cause of action for interference. First, Plaintiff makes the same argument as previously made in their opposition to Defendant’s demurrer to the FAC, which this court previously rejected. Second, the first element for both causes of action is that the plaintiff must allege an economic relationship or contract between the plaintiff and a third party. (emphasis added.) Again, the SAC does not indicate that Plaintiffs had any relationship or contract with another party. Rather, the seventh and eighth causes of action allege that AFI had relationships with other parties. The only reference to any relationship with third parties is paragraph 94 that states Defendant knew of these economic relationships between Plaintiffs and third parties.

 

            Demurrer as to the Seventh and Eighth Causes of Action is SUSTAINED.

 

Ninth Cause of Action: Breach of Fiduciary Duty

 

            Defendant argues that this cause of action fails because Plaintiffs have not adequately pleaded the breach element. Specifically, the SAC does not cite a “single improper transaction despite having had access to all of AFI’s financial records.” (Demurrer 19: 11-12.)

 

Plaintiff argues that this cause of action is sufficiently pleaded. In paragraph 107, Plaintiffs provide the various misdeeds, which include transfer funds to themselves, using AFI assets for personal expenses, cooking AFI’s books, issuing payments from AFI without shareholder’s consent, contacting clients to pay funds to Defendants, rather than paying AFI, concealing profits from minority shareholders. (Opp. 15: 12-20.)

 

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.)

 

Here, the Court finds that the SAC sufficiently alleges a cause of action for breach of fiduciary duty. There is a relationship, as Defendants were directors of AFI and therefore had a fiduciary duty to Plaintiffs Israel and Mairam. (SAC ¶ 106) This duty was breached when AFI’s funds were comingled, when AFI’s funds used for personal expenses, when the financial entries to falsified, when Defendants failed to obtain shareholder consent prior to issuing payments. (SAC ¶ 107.) As a result, Plaintiffs have been damaged. (SAC ¶ 107.)

 

            Demurrer as to the Ninth Cause of Action is OVERRULED.

 

Tenth Cause of Action: Tort of Another Doctrine

 

Defendant argues that this cause of action fails. Plaintiffs seek damages under this doctrine, but the SAC does not identify “any third person, do not identify any legal proceeding, and do not explain why any action any defendant allegedly took compelled Plaintiffs to bring a third-party action.” (Demurrer 20: 5-7.)

 

Plaintiff’s opposition states that “because torts are actionable, those defendants that aided and abetted are vicariously liable.” (Opp. 15: 28.)[1]

 

“The tort of another doctrine holds that “[a] person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney's fees, and other expenditures thereby suffered or incurred.” (Mega RV Corp. v. HWH Corp. (2014) 225 Cal.App.4th 1318, 1337.) “The doctrine allows a plaintiff to recover attorney fees “ ‘if he is required to employ counsel to prosecute or defend an action against a third party because of the tort of defendant.” (Behniwal v. Mix (2005) 133 Cal.App.4th 1027, 1043.)

 

            Because the breach of fiduciary duty cause of action was overruled, Plaintiffs have had to act to protect the interest against Defendants tortious action when they breached their fiduciary duty.

           

            Therefore, Demurrer as to the Tenth Cause of Action is OVERRULED.

 

 

Motion to Strike:

 

The Defendants moved to strike the following portions/paragraphs of the SAC:

 

1.      Paragraph 91, page 1, lines 4-6

2.      Paragraph 97, page 18, lines 3-9

3.      Paragraph 104, page 19, lines 6-12

4.      Paragraph 107, page 20, lines 23-26

5.      Prayer, Page 21, line 25

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.”

 

            As the Court has sustained causes of action 6th, 7th, and 8th causes of action, paragraphs 91, 97, and 104 are moot.

 

            As to Paragraph 107 and the Prayer for Relief, the Court finds that punitive damages are not appropriate. Plaintiffs’ cause of action for fraud was sustained, and therefore have failed to allege fraud. Further, the Court finds that Plaintiffs have failed to allege any malicious or oppressive conduct. While the facts as alleged could be viewed as 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.4th at 715.)

 

Motion to Strike the portions relating to Punitive Damages, paragraphs 91, 97, 104, 107, and Prayer for Relief, pg. 21, line 25 is GRANTED.

 

Leave to Amend:

 

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.) The Court has previously allowed Plaintiffs to amend their complaint to cure the defects, which they have still failed to do. The Court will allow one more amendment to fix the above defects.

 

Leave to Amend is GRANTED.

 

CONCLUSION:

 

For the foregoing reasons, the Court decides the pending motion as follows:

 

Demurrer is SUSTAINED, with 20 days leave to amend, as to the 4th, 5th, 6th, 7th, and 8th causes of action.

Demurrer is OVERRULED, as to the 9th and 10th causes of action.

Motion to Strike is GRANTED, in its entirety.

 

Moving party is to give notice.

 

IT IS SO ORDERED.

 

Dated:             April 19, 2023             __________________________________                                                                                                                Upinder S. Kalra

                                                                                    Judge of the Superior Court

 


[1] Plaintiffs’ Opposition as well as the tenth cause of action are the same from the FAC and original Opposition.