Judge: Virginia Keeny, Case: 19VECV01817, Date: 2023-03-28 Tentative Ruling
Case Number: 19VECV01817 Hearing Date: March 28, 2023 Dept: W
FARZIN MALY, ET AL. V. BRETT C HARRISON, ET AL.
MOTION
FOR JUDGMENT ON THE PLEADINGS
Date of Hearing: March 28, 2023 Trial Date: None set.
Department: W Case No: 19VECV01817
Moving
Party: Defendants XQB
Management, Inc., Tryston Harrison and David Thomas Lloyd
Responding
Party: Plaintiffs Farzin Maly and
Bahareh Mohammadzadeh Moghaddam
Meet
and Confer: Yes. (Malek Decl. ¶2.)
FACTUAL
BACKGROUND
On December 20, 2019, Plaintiffs Farzin Maly and Bahareh
Mohammadzadeh Moghaddam filed a complaint against Defendants Brett C. Harrison
aka Brett Christian Harrison; BCH Enterprises, LLC; Tryston Harrison; Re/Max Olson
& Associates; David Thomas Lloyd; Center Street Lending Fund IV Spe, LLC; Bagnard
Company, LLC; CT Lien Solutions; Mario Simone; The Turoci Firm, Inc.; BM Stewardship
Inv., LLC; Prominence Capital Partners, LLC, and Charles Ockwell.
On November 2, 2020, Plaintiffs filed a second amended complaint
alleging causes of action for (1) Breach of Contract; (2) Specific Performance;
(3) Fraud; (4) Conversion; (5) Violation of Penal Code section 496; (6) Quiet
Title; (7) Breach of Fiduciary Duties; and (8) Negligence. Plaintiff also named
XQB Management, Inc. and Twisted River Capital, LLC as additional defendants.
On April 30, 2021, XQB Management, Inc., Tryston Harrison, and
David Thomas Lloyd filed a cross-complaint against BCH Enterprises, LLC and
Brett C. Harrison asserting causes of action for indemnification, apportionment
of fault, and declaratory relief.
TENTATIVE
RULING:
Defendants XQB Management, Inc., Tryston Harrison and David Thomas
Lloyd’s Motion for Judgment on the Pleadings is GRANTED WITH LEAVE TO
AMEND.
DISCUSSION
Defendants XQB Management, Inc., Tryston Harrison and David Thomas
Lloyd moves this court for a judgment on the pleadings on the grounds the
complaint fails to state facts sufficient
to constitute a cause of action
against Defendants on the fourth cause of action for Conversion and the fifth cause of action for Violation
of Penal Code §496 and therefore judgment should be entered in favor of Defendants.
It is well established in California
that either prior to trial or at the trial the plaintiff or the defendant may
move for judgment on the pleadings and that the appropriate ground for such a
motion is the same as that arguable by general demurrer, namely, the failure to
state a cause of action or defense. (Dobbins
v. Hardister (1966) 242 Cal.App.2d 787, 791; See also Sofias v. Bank of
America (1985) 172 Cal.App.3d 583, 586 [The non-statutory motion for
judgment on the pleadings can be made at any time, even during trial, since the
grounds for a general demurrer are never waived.].)
The standard for ruling on a motion for
judgment on the pleadings is essentially the same as that applicable to a
general demurrer, that is, under the state of the pleadings, together with
matters that may be judicially noticed, it appears that a party is entitled to
judgment as a matter of law. (Bezirdjian v. O'Reilly (2010) 183
Cal.App.4th 316, 321-322 (citing Schabarum v. California Legislature
(1998) 60 Cal.App.4th 1205, 1216).) Matters which are subject to mandatory
judicial notice may be treated as part of the complaint and may be considered
without notice to the parties. Matters which are subject to permissive judicial
notice must be specified in the notice of motion, the supporting points and
authorities, or as the court otherwise permits. (Id.)
Conversion
Defendants argue Paragraphs 17-19 make
it clear that the moving parties did not exercise the required control over the
funds to support a claim for conversion. Defendants also contend Plaintiffs
claim is premised on the right to repayment based on contract, which is
insufficient to support a claim for conversion.
“‘Conversion is any act of dominion wrongfully
exerted over another’s personal property in denial of or inconsistent with his
rights therein.’” (Enterprise Leasing Corp. v. Shugart Corp. (1991) 231
Cal.App.3d 737, 747 (quoting Messerall v. Fulwider (1988) 199 Cal.App.3d 1324,
1329).) “‘It is not necessary that there be a manual taking of the property; it
is only necessary to show an assumption of control or ownership over the
property, or that the alleged converter has applied the property to his own
use.’” (Id.)
Plaintiffs allege in failing to either
convey good title to the property or to repay the sums released from or paid by
Plaintiffs outside of escrow, Defendants knowingly and purposely exercised
dominion and control over Plaintiffs’ personal property. (SAC ¶67.) Plaintiffs
claim they had a right to the funds released from or paid outside of escrow at
the time that Defendant BCH was unable to convey good title to Plaintiffs. (SAC
¶68.)
Defendants argue the funds were held by
escrow and released directly to defendant Brett Harrison or his businesses and
therefore, Defendants did not exercise the required control over the funds to
support a claim for conversion. Defendants further argue “the simple failure to
pay money owed does not constitute conversion’… otherwise, the tort of
conversion would swallow the significant category of contract claims that are
based on the failure to satisfy ‘mere contractual right[s] of repayment.’”
(Voris v. Lampert (2019) 7 Cal. 5th 1141, 1151-1152.)
In opposition, Plaintiffs argue they
have sufficiently alleged moving Defendants are the alter egos of the Harrison
Defendants, who obtained the funds. Plaintiffs also contend they have
sufficiently alleged conversion because any wrongful interference with
possession is enough to render a defendant liable for conversion.
The corporate veil may be pierced “where
an abuse of the corporate privilege justifies holding the equitable ownership
of a corporation liable for the actions of the corporation.” (Sonora Diamond
Corp. v Superior Court (2000) 83 Cal.App.4th 523, 538.) “Under the alter ego
doctrine, . . . when the corporate form
is used to . . . accomplish some [] wrongful or inequitable purpose, the courts
will ignore the corporate entity and deem the corporation’s acts to be those of
the persons or organizations actually controlling the corporation, in most
instances the equitable owners.” (Id.)
The court agrees Plaintiff has not
sufficiently alleged alter ego liability. As noted above, alter ego allegations
must include when the corporate form is used to accomplish wrongful conduct. It
is legally impossible for Lloyd to be the alter ego of Tryston or Brett or
Brett and Tryston to be alter egos of one another. The court does disagree with
Defendants, however, that this action is based on failure to pay money owed.
Plaintiffs alleged they paid the sum of $172,250.00 to defendants outside of
escrow purportedly as a credit against the purchase price but Defendants never
delivered title to the property. (SAC ¶¶58, 60.)
Plaintiff has also alleged that the BHX
defendants were the agents of the other defendants, but an agent is not
typically liable for the misdeeds of its employer. Plaintiffs may actually be alleging that the
BHX defendants conspired with the other defendants or aided and abetted them in
their alleged fraudulent actions, but that is not currently alleged.
Accordingly, Defendants’ motion for
judgment on the pleadings is GRANTED WITH LEAVE TO AMEND.
Violation
of Penal Code §496
Defendants first argue the California
Supreme Court has issued an opinion in July of 2022, that makes clear that
Penal Code §496(c) is not applicable in this action.
In Siry Investment, L.P. v.
Farkhondehpour (2022) 13 Cal.5th 333, the California Supreme Court held §
496(c) applies when property has been obtained in any manner constituting
theft. The Supreme Court analyzed the ruling in the Appellate Court’s decision,
which Defendants cite to, but endorsed the analysis of Bell v. Feibush
(2013) 212 Cal.App.4th 1041 and Switzer v. Wood (2019) 35 Cal.App.5th
116, which held section 496(c) is clear and unambiguous and as a result, “[a]ll
that is required for civil liability to attach under section 496(c), including
entitlement to treble damages, is that a ‘violation’ of subdivision (a) or (b)
of section 496 is found to have occurred. … A violation may be found to have
occurred if the person engaged in the conduct described in the statute.” (Switzer
v. Wood (2019) 35 Cal.App.5th 116, 126.)
Siry went on to explain that “Section 496(a) extends to property ‘that has
been obtained in any manner constituting theft.’ Penal Code section 484
describes acts constituting theft. The first sentence of section 484,
subdivision (a) states: ‘Every person who shall feloniously steal, take, carry,
lead, or drive away the personal property of another, or who shall fraudulently
appropriate property which has been entrusted to him or her, or who shall
knowingly and designedly, by any false or fraudulent representation or
pretense, defraud any other person of money, labor or real or personal
property, or who causes or procures others to report falsely of his or her wealth
or mercantile character and by thus imposing upon any person, obtains credit
and thereby fraudulently gets or obtains possession of money, or property or
obtains the labor or service of another, is guilty of theft.’ (Italics added.)
Section 484 thus defines theft to include theft by false pretense.” (Siry, supra, at p. 350.)
While the Siry court
expressed some misgivings about transforming any ordinary commercial dispute
into a claim for treble damages and attorney’s fees by merely framing the
breach as an act of fraud, the court nonetheless adopted this broad
interpretation of Section 496. The court
did caution the plaintiff, however, that it would have to “theft,” and to do so,
“a plaintiff must establish criminal intent on the part of the defendant beyond
‘mere proof of nonperformance or actual falsity.’ (People v. Ashley
(1954) 42 Cal.2d 246, 264, 267 P.2d 271.) This requirement prevents
“‘[o]rdinary commercial defaults’” from being transformed into a theft. (Id.,
at p. 265, 267 P.2d 271.) If misrepresentations or unfulfilled promises ‘are
made innocently or inadvertently, they can no more form the basis for a
prosecution for obtaining property by false pretenses than can an innocent
breach of contract.’ (Id., at p. 264, 267 P.2d 271.)” (Siry, supra at p. 362.)
Defendants also argue that plaintiff has
failed to allege the funds were released to them. This point is
well-taken. As with the claim for
conversion, there must be some allegations that connects these defendants to
the theft, other than the legally deficient alter ego allegations discussed
above.
Accordingly, Defendants’ motion for
judgment on the pleadings as to the Violation of Penal Code §496 cause of
action is GRANTED WITH LEAVE TO AMEND.