Judge: Virginia Keeny, Case: 24STCV03808, Date: 2025-05-08 Tentative Ruling

Case Number: 24STCV03808    Hearing Date: May 8, 2025    Dept: 45

DENNIS DEVAUGHN, et al. vs TURNING POINT NETWORK LLC, et al.

plaintiff’s motion for leave to amend complaint  

Date of Hearing:        May 8, 2025                                       Trial Date:       None set.  

Department:              45                                                        Case No.:        24STCV03808

Moving Party:            Plaintiff Dennis DeVaughn

Responding Party:     Defendant Turning Point Network LLC

BACKGROUND

This action arises from an alleged agreement between Plaintiffs and Defendants.  On February 14, 2024, Plaintiffs filed a complaint against Defendants asserting the following causes of action: (1) declaratory relief; (2) damages for breach of partnership contract; and (3) fraud. 

[Tentative] Ruling

Plaintiffs’ Motion for Leave to Amend Complaint is GRANTED.

discussion

Plaintiffs move for an order permitting the filing of an amended complaint to (1) add a new defendant, Turning Point Network, a California Corporation ("TPN INC"); and (2) assert additional causes of action for fraudulent conveyance,' successor liability, constructive fraud, and conversion.

The courts have a strong policy of allowing motions for leave to amend. “If the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend….” (Morgan v. Sup. Ct. (1959) 172 Cal.App.2d 527.)  A court can deny leave to amend after long, inexcusable delay, where there is cognizable prejudice, such as discovery needed, trial delay, critical evidence lost, or added preparation expense.  (Solit v. Tokai Bank (1999) 68 Cal.App.4th 1435, 1448; Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 761; Green v. Rancho Santa Margarita Mortgage Co. (1994) 28 Cal.App.4th 686, 692; Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 487.)  Notably, “it is not required to accept an amended complaint that is not filed in good faith, is frivolous, or sham.” (American Advertising & Sales Co. v. Mid-Western (1984) 152 Cal.App.3d 875, 878.)

A party requesting leave to amend must also comply with CRC Rule 3.1324, by including a copy of the proposed amended pleading and attaching a declaration by Plaintiff’s counsel, as to (1) the effect of the amendment; (2) why the amendment is necessary and proper; (3) when the facts giving rise to the amended allegations were discovered; and (4) why the request was not made earlier. 

As noted above, Plaintiff seeks to add TPN Inc and assert additional causes of action. Plaintiff maintains these new allegations are based on events that occurred after the original complaint was filed, and which came to light during the course of discovery. Plaintiff contends discovery revealed that, in response to this action, Defendants secretly dissolved TPN LLC, formed TPN INC, transferred all of TPN LLC's assets to TPN INC, and continued the same business operations under the new entity. Once discovered, Plaintiffs acted promptly by seeking leave to amend. The amended motion seeks to void the transfer of assets from TPN LLC to TPN INC, and to hold TPN INC liable for TPN LLC's debt to Plaintiffs under theories of fraudulent conveyance and successor liability. Plaintiff maintains these claims are necessary to protect Plaintiffs' contractual rights and ensure that any judgment obtained in this case is not rendered meaningless by Defendants' transfer of assets to evade liability.

In opposition, Defendant argues the motion should be denied on the grounds of judicial estoppel, alter ego cannot be raised by shareholders of a defendant corporation, and plaintiffs cannot enforce a non-existent partnership agreement. Defendant also argues the additional causes of action should not be allowed.

First, Defendant argues the doctrine of judicial estoppel can and should be relied upon here to force Plaintiffs to assert a legal position that requires Plaintiffs to call their interest a minority interest in a dissolved LLC and refrain from calling the arrangement a partnership. The court disagrees. The court does not find the proposed amended complaint a sham pleading. Whether the parties dispute the status of the company-- Plaintiff argues it is a label issue-- is not grounds to deny the motion for leave to amend.

Next, Defendants argue the amended cause of action for alter ego cannot be alleged because Plaintiffs made available a $150,000 line of credit for 30% interest in TPN. (See Seretti v. Superior Nat. Ins. Co. (1999) 71 Cal. App. 4th 920, 931.)  The court disagrees. Plaintiffs do not allege a cause of action for alter ego but simply adds alter ego theories of liability against TPN LLC, TPN Inc, and Defendants Reyes, Tulanda and Lewis.  There is nothing on the face of the amended complaint nor judicially noticeable facts demonstrating that these allegations are impermissible as a matter of law.

Defendants next argue Plaintiffs cannot enforce a non-existent partnership. However, as noted above, the label of “PARTNERSHIP AGREEMENT”, at this stage, is not grounds to deny the motion for leave to amend.

Lastly, Defendants argue the additional causes of action fail. However, Defendants have not shown that they fail on the face of the complaint. As noted above, the courts have a strong policy of allowing motions for leave to amend. “If the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend….” (Morgan, supra, 172 Cal.App.2d 527.) Defendants have not shown any prejudice by the amendment. Whether or not Plaintiffs claims actually have merit are better suited for merit based motions including demurrer, summary judgment or the like. 

The court finds Plaintiff has sufficiently complied with CRC Rule 3.1324. Accordingly, Plaintiffs’ motion for leave to amend complaint is GRANTED.