Judge Upinder S. Kalra, Case Number: 23STCV31162, Date: 2024-11-07 Tentative Ruling

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CASE NAME: Chol Enterprises, Inc. v. 740 South Broadway Associates, LLC, et al.

MOVING PARTY: Cross-Defendants Chol Enterprises, Inc., Erik Chol, and Shine FX Production Inc.

1. Demurrer to the first, second, fourth, fifth, sixth, seventh, eighth, and ninth causes of action in the First Amended Cross-Complaint for failure to state sufficient facts to constitute a cause of action;

On December 21, 2023, Plaintiff Chol Enterprises, Inc. (Plaintiff) filed a Complaint against Defendant 740 South Broadway Associates, LLC (740 South Broadway) with three causes of action for: (1) Breach of Contract, (2) Trespass to Chattels, and (3) Conversion. According to the Complaint, Plaintiff took possession of the Globe Theatre in Los Angeles (the Theatre) and restored it. 740 South Broadway allegedly locked Plaintiff out and is wrongfully withholding Plaintiff’s possessions.

On December 29, 2023, Plaintiff filed a notice of related cases with Case Nos. 21STCV39031 and 22STCV01203.

On April 2, 2024, 740 South Broadway filed a Cross-Complaint against Chol Enterprises, Inc., Erik Chol, Shine FX Production Inc. and Florence Chol (Cross-Defendants) with ten causes of action for: (1) Breach of Amended Lease, (2) Rent and Damages (Civil Code § 1951.2), (3) Breach of Written Guaranty, (4) Community Property Obligation, (5) Breach of Settlement Agreement, (6) Open Book Account, (7) Account Stated, (8) Unjust Enrichment, (9) Violation of California Civil Code § 3439.04(a)(1), and (10) Fraudulent Transfer in Violation of Civil Code § 3439.04(a)(2)(A).

On April 2, 2024, 740 South Broadway filed a demurrer with motion to strike to the FAC which the court OVERRULED and GRANTED.

On April 10, 2024, 740 South Broadway filed an amendment to their cross-complaint amending ROE 1 to Eric Chol, Trustee of the Chol Living Trust under the Instrument dated August 25, 2016 and ROE 2 to Florence Barrois EP Chol, Trustee of the Chol Living Trust under the Instrument dated August 25, 2016.

On May 2, 2024, Shine FX Production Inc. (Shine FX) filed a Cross-Complaint against 740 South Broadway with four causes of action for: (1) Trespass to Chattels, (2) Conversion, (3) Replevin (claim and delivery), and (4) Intentional Interference with Contractual Relations.

On May 9, 2024, Chol Enterprises, Inc., Erik Chol, and Shine FX filed a Demurrer with Motion to Strike to 740 South Broadway’s Cross-Complaint.

On May 13, 2024, Plaintiff filed a fictitious name amendment amending DOE 1 to Houman Sarshar.

On May 31, 2024, 740 South Broadway filed an Answer to Shine FX’s Cross-Complaint.

On May 31, 2024, Shine FX, Chol Enterprises, Inc., and Erik Chol filed a First Amended Cross-Complaint.

On July 24, 2024, Chol Enterprises, Inc., Erik Chol, and Shine FX filed a demurrer to 740 South Broadway’s First Amended Cross-Complaint.

On August 1, 2024, 740 South Broadway, Houman Sarshar, and Globe Theater Entertainment, Inc. filed an Amended Demurrer and Amended Motion to Strike to the SAC.

On October 23, 2024, 740 South Broadway filed an Opposition to the demurrer to its FACC.

On October 25, 2024, Shine FX filed oppositions to 740 South Broadway’s demurrer and motion to strike its FACC.

On October 28, 2024, Counsel for Erik Chol, Chol Enterprises, Inc., and Shine FX filed a motion to be relieved as counsel.

On October 29, 2024, Shine FX, Chol Enterprises, Inc., and Erik Chol filed a reply.

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). Here, the meet and confer requirement was not met per Cross-Defendants’ declaration. However, 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 DENIES Cross-Defendants’ requests for judicial notice. “A party requesting judicial notice of material under Evidence Code section 452 or 453 must provide the court and each party with a copy of the material. If the material is part of a file in the court in which the matter is being heard, the party must specify in writing the part of the court file sought to be judicially noticed and make arrangements with the clerk to have the file in the courtroom at the time of the hearing.” (Cal. Rules of Court, rule 5.115.)

Cross-Defendants contend that 740 South Broadway insufficiently alleged unity of interest and unjust result to support alter ego liability. 740 South Broadway argues it has alleged the ultimate facts. Cross-Defendants reply that 740 South Broadway possesses or has access to records and information to support its alter ego claims and failed to do so.

To plead alter ego, there must be factual allegations that would establish a unity of interest, such as commingling of funds and other assets, the holding out of the entities as liable for the debts of the principal, use of the same offices and employees, use of one another as a mere shell or conduit for the affairs of the other, inadequate capitalization and failure to adhere to corporate formalities. (Automotriz Del Golfo De California SA de CV v. Resnicke (1957) 47 Cal.2d 792, 796; Sonora Diamond Corp. v. Sup. Ct (2000) 83 Cal.App.4th 523, 538.) A plaintiff must also allege an unjust result if the corporation is treated as the sole actor. (Leek v. Cooper (2011) 194 Cal.App.4th 399, 415.) A plaintiff need only allege ultimate facts to plead alter ego and survive demurrer. (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 236.) Additionally, “less particularity . . . is required where the defendant may be assumed to possess knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff.” (Id. at p. 236.)

Upon reviewing the FACC, 740 South Broadway has sufficiently alleged alter ego liability. Notably, 740 South Broadway alleges Chol “dominated, influenced, and controlled” Tenant, “treated the Tenant’s assets, and monies interchangeably with SHINE,” that there are no separate personalities between the entities and Chol, Chol participated “to benefit himself at the expense of the Tenant’s and SHINE’s creditors,” Shine is a “mere shell and naked framework,” that Chol diverted funds, that Chol directed Tenant and Shine not to pay 740 South Broadway, is concealing or delaying discovery of assets to pay Tenant’s creditors, disregarded corporate formalities, and considering separateness would constitute an injustice. (FACC ¶ 9.) Cross-Defendants’ argument that 740 South Broadway needed to plead better facts is not well taken.

Cross-Defendants contend that 740 South Broadway’s claim for breach of amended lease is barred by claim and issue preclusion based on prior civil and eviction actions.[1] 740 South Broadway argues they carved out the damages already sought in the Eviction Action for the Stipulated Debt, the other court did not retain or maintain jurisdiction, and they seek new damages so this claim is not barred. Cross-Defendants reply that the validity hinged on performance of specific obligations that were not fulfilled as found by another court.

The doctrine of res judicata precludes the re-litigation of certain matters which have been resolved in a prior proceeding under certain circumstances. (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 556.) “Res judicata, or claim preclusion, prevents re-litigation of the same cause of action in a second suit between the same parties or parties in privity with them.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896.) “Collateral estoppel, or issue preclusion, precludes re-litigation of issues argued and decided in prior proceedings.” (Ibid.) “Res judicata applies if (1) the decision in the prior proceeding is final and on the merits; (2) the present proceeding is on the same cause of action as the prior proceeding; and (3) the parties in the present proceeding or parties in privity with them were parties to the prior proceeding.” (Fed'n of Hillside & Canyon Associations v. City of Los Angeles (2004) 126 Cal.App.4th 1180, 1202.) “Full faith and credit must be given to a final order or judgment of a federal court. Such an order or judgment has the same effect in the courts of this state as it would have in a federal court.” (Levy v. Cohen (1977) 19 Cal.3d 165, 172-173.) “A judgment is on the merits for purposes of res judicata, ‘if the substance of the claim is tried and determined…’ This may include a judgment of dismissal following a general demurrer or a dismissal motion if the disposition was plainly reached ‘on the ground of substance’.” (Association of Irritated Residents v. Dept. of Conservation (2017) 11 Cal.App.5th 1202, 1220.) The reasoning for this doctrine is that the parties have already had a fair opportunity to present and litigate their cases. (Ibid. at 1219.) However, if the prior judgment was not on the merits, then res judicata does not apply and does not bar the new action. (Goddard v. Security Title Ins. & Guar. Co. (1939) 14 Cal.2d 47, 52.) “It is established California law that a dismissal for want of prosecution is not on the merits and therefore does not operate as res judicata to a subsequent proceeding.” (Mattern v. Carberry (1960) 186 Cal.App.2d 570, 572.)

Upon reviewing the FACC and all papers filed with the demurrer, the court disagrees that this claim is barred by res judicata. First, 740 South Broadway admits that there are two prior matters between these parties concerning the Property. (FACC ¶ 17; see also Notice of Related Cases field December 29, 2023.) 740 South Broadway attached a Settlement Agreement noting the amount of rent due. (FACC, Exhibit E.) The Settlement Agreement concerns the subject lease. (Ibid.) 740 South Broadway’s “Amended Lease” refers to amendments to the original lease. (FACC ¶ 14.) Tenant was evicted on November 29, 2023. (FACC ¶ 22.) The court in the other action amended the Judgment as recently as February 22, 2024. (FACC ¶ 21.) As alleged, 740 South Broadway seeks holdover damages, i.e., the rents owed from April 2022 until eviction in November 2023. (FACC ¶ 23.) Holdover damages were not contemplated by the Settlement Agreement.

Accordingly, the court OVERRULES the demurrer to the second cause of action.

Cross-Defendants contend that Mr. Chol signed the lease on behalf of Tenant Chol Enterprises, Inc. and the personal guaranty in his personal capacity. 740 South Broadway argues that this claim is proper under Family Code § 910 to determine the character of the real property held in trust. Cross-Defendants do not address this in reply.

Family Code § 910(a) states: “Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.”

As a threshold matter, the court addresses what this claim is. The court is not bound by the captions or labels of a cause of action in a pleading and the nature and character of a pleading is to be determined from the facts alleged, not the name given by the pleader to the cause of action. Thus, regardless of whether the complaint gives the causes of action a label imbued with personal property law meaning, it is the facts behind the label which govern the nature and character of the primary right sued upon. (Ananda Church of Self-Realization v. Massachusetts Bay Insurance (2002) 95 Cal. App. 4th 1273, 1281.)

“When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable.” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394.)

Here, 740 South Broadway “seeks an accounting . . . for all community property assets” to the extent Erik Chol is liable for a debt.[2] (FACC ¶¶ 51, 53.) There is a claim for breach of guaranty by Erik Chol that is unchallenged. (FACC ¶¶ 42-49.) As such, there is a valid accounting claim.

Accordingly, the court OVERRULES the demurrer to the fourth cause of action.

Cross-Defendants contend the second element is not plead. 740 South Broadway argues that they did not need to allege the existence of a book because their claim for breach of lease is sufficient. Cross-Defendants do not address this in reply.

Here, because 740 South Broadway’s breach of lease claim survives, so does its claim for open book account.

For the same reasoning articulated in the fifth cause of action, this claim fails.

Cross-Defendants contend this claim is barred by claim and issue preclusion. Cross-Defendants also contend this claim is barred by equitable estoppel due to 740 South Broadway’s bad acts in violation statutory requirements of CCP § 715.010(b)(3) and wrongfully withholding their possessions. 740 South Broadway argues that this is a factual dispute that is not proper on demurrer. Cross-Defendants do not address this in reply.

For the same reasons articulated in the first cause of action, this claim survives.

Accordingly, the court OVERRULES the demurrer to the seventh cause of action.

Cross-Defendants contend this claim lacks the requisite specificity.[3] 740 South Broadway argues they sufficiently alleged this claim and is otherwise a question of fact. Cross-Defendants reply that 740 South Broadway still failed to allege fraudulent intent, lack of equivalent value, or insolvency.

“A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation” “with actual intent to hinder, delay, or defraud any creditor of the debtor.” (Civ. Code § 3439.04(a)(1).) “[W]hether a conveyance is made with fraudulent intent is a question of fact.” (Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, 1294.)

Upon reviewing the FACC, 740 South Broadway sufficiently alleged a fraudulent transfer. Notably, they allege that the Asset Purchase Agreement was intended to hinder their ability to collect debt. (FACC ¶¶ 69, 71.) Whether this is true is not appropriate at the demurrer stage.

Accordingly, the court OVERRULES the demurrer to the eighth cause of action.

ix. Ninth Cause of Action – Fraudulent Transfer In Violation of Civil Code § 3439.04(a)(2)(A)

For the same reasons articulated in the first cause of action, this claim survives.

1. Demurrer to the FACC is OVERRULED in its entirety. Cross-Defendant is to ANSWER only within 10 days of this order.

[1] Cross-Defendants rely on requests for judicial notice that did not attach the final rulings.

[2] There may also be a standing issue for this demurrer since Cross-Defendants do not represent Mrs. Chol.

[3] Cross-Defendants’ reliance on Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286 is misplaced because that case was at summary judgment, not the demurrer stage.

CASE NAME: Chol Enterprises, Inc. v. 740 South Broadway Associates, LLC, et al.

MOVING PARTY: Cross-Defendants 740 South Broadway Associates, LLC and Houman Sarshar

1. Demurrer to the First Amended Cross-Complaint for failure to state sufficient facts to constitute a cause of action;

2. Motion to Strike punitive damages relief from the Prayer as to the First, Second, and Fourth Causes of Action.

1. Demurrer to the First, Second, and Third Causes of Action is OVERRULED as to 740 South Broadway Associates, LLC;

2. Demurrer to the Fourth Cause of Action is SUSTAINED as to 740 South Broadway Associates, LLC with leave to amend;

3. Demurrer to the entire FACC is SUSTAINED as to Houman Sarshar with leave to amend;