Judge Upinder S. Kalra, Case Number: 22STCV11220, Date: 2023-11-21 Tentative Ruling

1. If you wish to submit on the tentative ruling, please email the clerk at SMCdept51@lacourt.org (and “cc” all other parties in the same email) and notify all other parties in advance that you will not be appearing at the hearing. Include the word "SUBMISSION" in all caps in the subject line and include your name, contact information, the case number, and the party you represent in the body of the email. If you do not have access to the internet, you may call the clerk at (213) 633-0351.

If you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear and argue the motion, and the Court may decide not to adopt the tentative ruling. Please note that the tentative ruling is not an invitation, nor an opportunity, to file any further documents relative to the hearing in question which are not authorized by statute or Rule of Court.

2. For any motion where no parties submit to the tentative ruling in advance, and no parties appear at the motion hearing, the Court may elect to either adopt the tentative ruling or take the motion off calendar, in its discretion.

3. DO NOT USE THE ABOVE EMAIL FOR ANY PURPOSE OTHER THAN TO SUBMIT TO A TENTATIVE RULING. The Court will not read or respond to emails sent to this address for any other purpose.

MOVING PARTY: Plaintiffs/Cross-Defendants D-MAS, LLC, Israel Yagudaev, and Mairam Yagudaev.

1. Demurrer to the entire Cross-Complaint for failure to state facts sufficient and for uncertainty;

3. An Order striking various portions of the Cross-Complaint pertaining to punitive damages and attorney’s fees.

1. Demurrer to the First Cause of Action is SUSTAINED as to Mairam and D-MAS with leave to amend but OVERRULED it as to Yagudaev;

3. Demurrer to the Third Cause of Action is SUSTAINED as to Mairam and D-MAS with leave to amend but OVERRULED it as to Yagudaev;

7. Motion to Strike is GRANTED in part as to Page 15, lines 7-9 and the prayer for attorney’s fees only;

On April 4, 2022, Defendants 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 July 5, 2022, Defendants filed a Demurrer and Motion to Strike, which was SUSTAINED, with leave to amend.

On February 7, 2023, Defendants AFI Financial Inc., Igor Okhman, Erina Gilerman and Larissa Shor filed a Demurrer with Motion to Strike, which was SUSTAINED, in part, and OVERRULED, in part.

On June 1, 2023, Defendants AFI Financial Inc., Igor Okhman, Erina Gilerman and Larissa Shor filed a Demurrer with Motion to Strike, which was SUSTAINED, in part, and OVERRULED, in part.

On July 14, 2023, Cross-Complainant AFI Financial Inc. (Cross-Complainant) filed a Cross-Complaint against Cross-Defendants [Israel] Yagudaev[1] (Yagudaev), Mairam Yagudaev (Mairam), and D-Mas, LLC (D-MAS) (collectively, Cross-Defendants) with six causes of action for: (1) Fraud – Promissory Fraud; (2) Fraud – Intentional Misrepresentation; (3) Fraud – Concealment; (4) Constructive Fraud; (5) Breach of Fiduciary Duty; and (6) Tort of Another Doctrine.

According to the Cross-Complaint, Cross-Defendants promised to lend Cross-Complainant $10 million related to building Cross-Complainant’s auto-flooring business. Cross-Complainant further alleges that Cross-Defendants first invested $300 thousand over a series of months to monitor the business and then secured Promissory Notes from Cross-Complainant for $2.2 million in December 2019. After that time, Cross-Complainant alleges that Cross-Defendants had full access to Cross-Complainant’s business, including proprietary information. Cross-Complainant further alleges that Cross-Defendants kept promising to fund the remaining $7.5 million to Cross-Complainant so the business would not fail but allege that Cross-Defendants intentionally drove Cross-Complainants business down to coerce an unfair sale. Cross-Complainant’s business closed in June 2022.

On August 16, 2023, Cross-Defendants filed the instant demurrer and motion to strike. On November 7, 2023, Cross-Complainant filed oppositions. On November 14, 2023, Cross-Defendants filed a reply in support of the demurrer but did not file a reply in support of the motion to strike.

Prior to filing a demurrer, the demurring party is required to satisfy their meet and confer obligations pursuant to Code of Civ. Proc. (CCP) §430.41 and demonstrate that they so satisfied their meet and confer obligation by submitting a declaration pursuant to CCP §430.41(a)(2) & (3).¿The meet and confer requirement also applies to motions to strike. (CCP § 435.5.) according to the demurrer, the parties met and conferred via telephone call on August 9, 2023, however, Cross-Defendants did not attach a supporting declaration. Still, failure to meet and confer is not a sufficient ground to overrule or sustain a demurrer. (CCP § 430.41(a)(4).)

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. (CCP § 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.)

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.

1. Exhibit A – 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 v. AFI Financial Inc., et al. Los Angeles Superior Court Case No. 22STCV112200 (without exhibits);

2. Exhibit B – Demurrer to Second Amended Complaint filed on February 7, 2023 in D-MAS LLC, et al v. AFI Financial Inc., et al. Los Angeles Superior Court Case No. 22STCV112200;

3. Exhibit C – Notice of Ruling re Demurrer to Second Amended Complaint filed on April 19, 2023 in D-MAS LLC, et al v. AFI Financial Inc., et al. Los Angeles Superior Court Case No. 22STCV112200.

Cross-Defendants argue that AFI filed a Certificate of Dissolution wherein it declared to have no assets, thereby testifying to have no existing claims. Cross-Defendants cite no authority supporting this position. Cross-Complainant contends that dissolved corporations can continue to exist to prosecute legal actions pursuant to Cal. Corp. Code § 2010(a). The court need not develop this objection because section 2010(a) has such an exception.

Cross-Defendants argue that the Cross-Complaint does not contain the requisite specificity to sustain the cause of action. Specifically, that the alleged fraud was promising to eventually lend $10 million. Cross-Complainant contends that Yagudaev had authority to speak on behalf of Mariam and D-Mas, and did so speak on their behalf, that Mairam ratified Yagudaev’s misrepresentations by accepting a benefit when she became a 12.5% shareholder in AFI, that Gudis and Okhman were acting as agents of AFI, that Gudis and Okhman reasonably relied on Yagudaev’s representations, and that there is no requirement to specifically allege subsequent attempts to cause Cross-Defendants to honor their false promise.[2]

“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; Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469; Perlas v. GMAC Mort., LLC (2010) 187 Cal.App.4th 429, 434 [requiring plaintiffs who claim fraud against a corporation to allege the names of the persons who made the misrepresentations, their authority to speak for the corporation, to whom they spoke, what they said or wrote, and when it was said or written.]) Fraud allegations need not be liberally construed, general pleading of the legal conclusion of fraud is insufficient, and every element of the cause of action for fraud must be alleged fully, factually and specifically. (Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal. App. 3d 1324, 1331.)

“[I]n a promissory fraud action, to sufficiently allege[] defendant made a misrepresentation, the complaint must allege (1) the defendant made a representation of intent to perform some future action, i.e., the defendant made a promise, and (2) the defendant did not really have that intent at the time that the promise was made, i.e., the promise was false.” (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1060.)

Upon reviewing the Cross-Complaint, the court agrees with Cross-Complainant, in part. As to Yagudaev, the Cross-Complaint sufficiently alleges a representation of intent to perform some future action – namely, his promise to obtain funding from D-MAS. (FAC ¶ 34.) The Cross-Complaint also alleges that all Cross-Defendants intended to learn AFI’s business model, customers and other proprietary information, and then make AFI financially vulnerable, not to actually provide the funding.[3] (Cross-Compl. ¶ 32.) The court is not persuaded that Cross-Complainant sufficiently alleged facts pertaining to D-MAS and Mairam. Indeed, while Cross-Complainant argues that Yagudaev spoke for D-MAS and that Mairam affirmed his misrepresentations, the Cross-Complaint contains no such allegations.

Accordingly, the court SUSTAINS the demurrer to the First Cause of Action as to Mairam and D-MAS with leave to amend but OVERRULES it as to Yagudaev.

Cross-Defendants argue that this cause of action fails because the promise concerned possible future events and so was a nonactionable opinion, plus it lacks requisite specificity. Cross-Complainant contends that the promise implies intent to perform, not an expression of opinion. Cross-Complainant additionally contends that it sufficiently alleged the required who, what, and when.

Intentional misrepresentation is “[t]he suggestion, as a fact, of that which is not true, by one who does not believe it to be true.” (California Civil Code section 1710(1).)

Upon reviewing the Cross-Complaint, the court again agrees in part and disagrees in part with Cross-Complainant. Here, Cross-Complainant concludes that Yagudaev acted on behalf of Mairam and D-MAS. This is a conclusion, not a fact. Additionally, the alleged statement in Paragraph 41 conflicts with the allegations in Paragraphs 13 and 16 (alleging the statements were that Yagudaev would “cause” D-MAS to lend the money). The other allegations are alleged on information and belief and are therefore speculation, not facts.

Accordingly, the court SUSTAINS the demurrer to the Second Cause of Action with leave to amend.

Cross-Defendants argue that the Cross-Complaint fails to allege duty to disclose. Specifically, Mairam was an alleged minority shareholder, Yagudaev was a minority shareholder, and no relationship plead as to D-Mas. Cross-Complainant contends that Yagudaev owed a fiduciary duty as a corporate officer of AFI, that a fiduciary duty is not required for this cause of action, and that Cross-Defendants misconstrue the alleged facts or ignore them outright.

“[T]he elements of an action for fraud and deceit based on a concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, he plaintiff must have sustained damage.” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248.)

Upon reviewing the Cross-Complaint, the court agrees in part and disagrees in part with Cross-Complainant.[4] First, the Cross-Complaint alleges Cross-Defendants owed a duty to disclose because the decision to allow Yagudaev and Mairam to become stockholders and for Yagudaev to become AFI’s Vice President hinged on Yagudaev’s promise to obtain the funding. (Cross-Compl. ¶ 51, 52.) Unlike Cross-Defendants’ contention that a fiduciary relationship is required, here, the allegation sufficiently demonstrates a transaction which would require such disclosure. (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336-337.) Second, Cross-Complainants allege they would not have gone through with this deal if they knew that Yagudaev did not intend to cause the funding to be lent, intended to put AFI out of business, or coerce an unfair sale. (Cross-Compl. ¶ 52.) However, Cross-Complainant’s allegations of intent to deceive are on information and belief which is tantamount to speculation, not facts, or conclusory. (Cross-Compl. ¶ 53.)

Accordingly, the court SUSTAINS the demurrer to the Third Cause of Action as to Mairam and D-MAS with leave to amend but OVERRULES it as to Yagudaev.

Cross-Defendants argue that the Cross-Complaint fails to allege requisite fiduciary relationships, failed to plead fraud specifically, and failed to allege that a further loan was ever requested or denied. Cross-Complainant contends that it sufficiently alleged a fiduciary duty by Yagudaev, that he is the only Cross-Defendant subject to this cause of action, and that Cross-Defendants ignore the other allegations of conduct beyond the promise to lend additional money.

Accordingly, the court OVERRULES the demurrer to the Fourth Cause of Action.

Cross-Defendants argue that Cross-Complainant failed to allege a clear statutory basis for any fiduciary duty and that the alleged damages are conclusory. Cross-Complainant contends that it sufficiently alleged a fiduciary duty by Yagudaev because he was an officer of AFI and that its damages resulted in needing to shut down operations.

The elements of a cause of action 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.)

Upon reviewing the Cross-Complaint, the court agrees in part and disagrees in part with Cross-Complainant. First, Yagudaev did owe a fiduciary duty as Vice President of AFI. (Cross-Compl. ¶ 61.) However, at the time the promises to obtain funding were made, Yagudaev was not AFI’s Vice President. (Cross-Compl. ¶ 13, 16.) However, Cross-Complainants did allege that Yagudaev in March 2022 said he would make sure AFI could no longer operate, which, as Vice President of AFI is clearly against AFI’s interest. (Cross-Compl. ¶ 27.) Cross-Complainants further allege that Yagudaev prevented AFI from acquiring new accounts and did not allow AFI to service existing accounts despite being told by Gudis and Okhman that this would be detrimental to AFI’s business. (Cross-Compl. ¶ 21.) Additionally, Yagudaev spoke to three of AFI’s clients to solicit their business for himself indicating that he would soon take over AFI, which is also against AFI’s interest. (Cross-Compl. ¶ 23.) Cross-Complainant also alleged damages resulting from Yagudaev’s actions because AFI started experiencing defaults from dealers because AFI refused to finance existing accounts and it eventually shut down operations. (Cross-Compl. ¶¶ 22, 28.)

Cross-Defendants argue that Cross-Complainant failed to allege that it had to bring any action against a third party for aiding and abetting a tort. Cross-Complainant contends that since Cross-Defendants’ underlying Complaint raised this same cause of action, and that the court overruled Cross-Complainant’s demurrer, so too must the court overrule the demurrer here. Additionally, Cross-Complainant contends that this cause of action does not turn on aiding and abetting liability.

“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’s 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.)

Upon reviewing the Cross-Complaint, the court agrees with Cross-Defendants that Cross-Complainant failed to sufficiently allege facts supporting this cause of action.[5] Indeed, Cross-Complainant did not bring any new parties into the underlying action to protect its interests. The court does not see how Cross-Complainant can amend its Cross-Complaint to assert it brought a third party into this action.

Accordingly, the court SUSTAINS the demurrer to the Sixth Cause of Action without leave to amend.

1. Page 9, line 9-10: “Cross-Complainant to cruel and unjust hardship in conscious disregard of its rights so as to justify an award of exemplary and punitive damages.”

2. Page 11, lines 12-13: “Cross-Complainant to cruel and unjust hardship in conscious disregard of its rights so as to justify an award of exemplary and punitive damages.”

3. Page 13, lines 4-5: “Cross-Complainant to cruel and unjust hardship in conscious disregard of its rights so as to justify an award of exemplary and punitive damages.”

4. Page 14, lines 14-16: “Cross-Complainant to cruel and unjust hardship in conscious disregard of its rights so as to justify an award of exemplary and punitive damages.”

5. Page 15, lines 7-9: “Cross-Complainant to cruel and unjust hardship in conscious disregard of its rights so as to justify an award of exemplary and punitive damages.”

6. Page 15, lines 17-19: “As a result, Cross-Complainant is entitled to recover compensation for the reasonably necessary loss of time, attorney’s fees, and other expenditures thereby suffered or incurred against Cross-Defendants, and each of them.”

8. Page 15, line 24: “For an award of attorney’s fees as permitted by law.”

Cross-Defendants argue that punitive damages are not warranted because the Cross-Complaint offers subjective interpretation of Cross-Defendants’ state of mind without facts.[6] Cross-Complainant contends that punitive damages are warranted for the fraud claim, and that the fiduciary duty claim sufficiently alleges malice, oppression, and/or fraud.

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 (Scott).) 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.”

Upon reviewing the Cross-Complaint, the court agrees in part and disagrees in part with Cross-Complainant. Punitive damages are warranted for the sufficiently plead fraud claims discussed above. However, punitive damages are not appropriate for the breach of fiduciary duty cause of action because Cross-Complainant failed to allege any malicious or oppressive conduct that would “so vile, base contemptible, miserable, wretched or loathsome.”[7] (Scott, supra, 175 Cal.App.4th at 715.) Cross-Complainant cites no authority supporting its position but concludes that the misconduct “clearly establishes an intent to cause injury or despicable conduct.”

Accordingly, the court GRANTS in part the motion to strike and strikes Page 15, lines 7-9 only.

Cross-Defendants argue that attorney’s fees are not warranted because the alleged oral contract here does not contain an attorney’s fees provision and there are no allegations for statutory authority for attorney’s fees. Cross-Complainant contends attorney’s fees are warranted under the sixth cause of action.

“A party may not recover attorney fees unless expressly authorized by statute or contract. [Citations.] In the absence of a statute authorizing the recovery of attorney fees, the parties may agree on whether and how to allocate attorney fees.” (Hom v. Petrou (2021) 67 Cal.App.5th 459, 464, review denied (Oct. 20, 2021); see also, Civ. Code § 1717.)¿

As indicated above, the court sustained the demurrer as to the sixth cause of action. As such, there is no remaining claim that supports attorney’s fees.

Accordingly, the court GRANTS the motion to strike as to the prayer for attorney’s fees.

9. Demurrer to the First Cause of Action is SUSTAINED as to Mairam and D-MAS with leave to amend but OVERRULED it as to Yagudaev;

11. Demurrer to the Third Cause of Action is SUSTAINED as to Mairam and D-MAS with leave to amend but OVERRULED it as to Yagudaev;

15. Motion to Strike is GRANTED in part as to Page 15, lines 7-9 and the prayer for attorney’s fees only;

[1] There appears to be a typo in the caption. The parties allegations indicate this is Israel Yagudaev.

[2] Cross-Complainant cites no authority supporting this final contention.

[3] However, this allegation is on information and belief which is arguably only speculative.

[4] As with the other causes of action thus far, the court does not see sufficient factual allegations roping in Mariam and D-MAS.

[5] Cross-Complainant’s argument that the court must overrule the demurrer because it did so for Plaintiffs’ Complaint is misguided, at best. Cross-Complainant cannot sidestep its obligation to sufficiently plead its claims.

[6] The court does not find Cross-Defendants’ reliance on Woolstrum v. Mailloux (1983) 141 Cal.App.3d Supp. 1 persuasive as this case is factually distinct and there are cases discussing the punitive damages requirement that are much newer.

[7] The court does not say that, if true, the facts are indeed wrong. They just do not rise to despicable conduct.