Judge William A. Crowfoot, Case 21GDCV00658 2023-05-15 Tentative Ruling

Judge: William A. Crowfoot, Case: 21GDCV00658, Date: 2023-05-15 Tentative Ruling

This action was filed on May 7, 2021, by plaintiff Helix Media LLC (“Helix”). Helix brings this action against Natalie Clark, Freya Holdings LLC (“Freya Holdings”), RPAC Holdings LLC (“RPAC Holdings”), and 41 limited liability companies; Helix asserts 25 causes of action. The operative First Amended Complaint (“FAC”) was filed on July 1, 2021.

In brief summary, Helix began its e-commerce business in 2018 to provide individuals with an opportunity to earn passive income by using a “sample structure” to sell health supplements. (FAC, ¶ 74.) This sample structure allows an end-customer to order products, provide financial information to a payment processing company, receive products, and decide within a certain amount of time whether to return or keep the products. (FAC, ¶ 89.) If the end-customer returns the products within a certain amount of time, Helix processes those returns; if the end-customer decides to keep the products, they are then charged.

Clark began working with Helix in mid-2018 to help identify and recruit individuals interested in Helix’s business model. Her job was to identify interested individuals, explain the business model, and have them execute the necessary agreements. (FAC, ¶ 7.) Between 2018 and early 2021, Clark successfully recruited over 20 individuals who collectively created 44 LLCs.

After executing a reseller agreement and irrevocable reserve assignment, Helix assists and guides each individual in forming a limited liability company, setting up a bank account, and signing up with certain payment processing companies, before managing all aspects of the business, including manufacturing, marketing, and accounting. (FAC, ¶¶ 78-80.) In exchange, Helix is entitled to 99% of the net profits and each LLC is entitled to keep the remaining 1%; each limited liability company typically earns several thousands of dollars a year and each individual typically owns two limited liability companies. (FAC, ¶¶ 83-84.) Helix alleges that numerous limited liability companies are necessary because payment processing companies view “sample model” businesses as riskier than traditional businesses. (FAC, ¶ 96.) These inherent risks include a higher percentage of returns within the sample window as well as chargebacks (which occur when a customer fails to return a product after the sample window expires and then later attempts to return or contest the sale). (FAC, ¶¶ 93-95.) Thus, the payment processing companies limit the payments a “sample model” business is allowed to process each year. (FAC, ¶¶ 97-98.)

Helix alleges that in late January and early February of 2021, Clark stole login credentials for each of the limited liability company’s bank accounts, logged into each account, transferred hundreds of thousands of dollars out of those accounts and into an account of RPAC Holdings LLC (“RPAC Holdings”) (which Clark allegedly owns and controls), and then changed each bank account’s password so that Helix could not access them. (FAC, ¶ 10.) Helix further alleges that on January 28, 2021, Clark emailed the individual owners of the limited liability companies accusing Helix of committing an “egregious and material breach of contract” by failing to pay them the full amount of their commission. (FAC, Ex. B.) Clark also alluded to “impending litigation” and informed them that she had retained counsel that would handle all communications with Helix on their behalf. (Ibid.) Clark then offered to purchase the assets of each limited liability company, stating that by selling them, the individuals would “be entirely and immediately absolved of the foregoing legal matter”; Clark also requested that they “simply not respond” to any communications from Helix. (FAC, ¶¶ 114-116.)

After Clark sent this email (the “January 28 Email”), some of the individuals disregarded Clark’s email, cooperated with Helix, instructed Clark to return their funds, and then terminated their relationship with Helix. (FAC, ¶ 123.) However, the majority of the individuals refused to cooperate with Helix. Clark then used Freya Holdings as a shell to purchase the assets of 41 limited liability companies from their individual owners. Clark, Freya, RPAC, and those acquired limited liability companies (the “LLCs”) are all represented by the same counsel.

On July 8, 2021, Clark and Freya Holdings filed an anti-SLAPP motion pursuant to Code of Civil Procedure section 425.16 on the grounds the January 28 Email was protected by the litigation privilege (the “Anti-SLAPP Motion”).

On August 3, 2021, Clark, Freya Holdings, and one of the LLCs, Whole Vitality Living JV LLC (“Whole Vitality Living”), filed a demurrer to each of Helix’s 25 causes of action.

On August 6, 2021, the Honorable Ralph C. Hofer denied the Anti-SLAPP Motion. Clark and Freya Holdings appealed the decision and the action was stayed while the appeal was pending.

On August 12, 2021, Helix requested the entry of default against RPAC Holdings and all the LLCs except for Whole Vitality Living.

On August 16, 2021, RPACA Holdings and the remaining 41 LLCs filed a notice joining in Clark, Freya Holdings, and Whole Vitality Living’s demurrer.

On September 23, 2021, Helix filed a motion for fees and costs related to the Anti-SLAPP Motion.

On September 29, 2021, Judge Hofer set aside the defaults of RPAC Holdings and the 41 LLCs.

On January 19, 2023, the Court of Appeal issued a remittitur affirming Judge Hofer’s order denying the Anti-SLAPP Motion and awarding Helix’s costs on appeal.

On April 14, 2023, Helix filed supplemental briefing and declarations in support of its motion for cost and fees. Clark and Freya Holdings filed their opposition brief, evidentiary objections, and supporting declarations on April 24, 2023. Helix filed its reply brief, response to evidentiary objections, and a supplemental declaration on May 1, 2023.

On April 14, 2023, Clark, Freya Holdings, and Whole Vitality Living filed their reply brief in support of their demurrer.

This order addresses Helix’s motion for costs and fees, as well as the demurrer filed by Clark, Freya Holdings, and Whole Vitality Living that RPAC and the remaining LLCs have joined.

A. Helix’s Motion for Attorneys’ Fees and Costs Against Clark, Freya Holdings, and Counsel of Record

Helix seeks its fees and costs pursuant to CCP sections 426.15 and 128.5 in the total amount of $33,708.37 for successfully opposing the Anti-SLAPP Motion and drafting the present motion. Helix contends that the Anti-SLAPP Motion was frivolous and/or solely intended to cause unnecessary delay.

a. Clark and Freya Holdings’ Objections to Helix’s Evidence and Helix’s Responses

The Court declines to rule on the objections to Kim Ng’s Declaration because the Court did not rely on it to reach its ruling.

The objections to paragraphs 22-24 of the Declaration of Denis Shmidt (filed 9/23/2021) are SUSTAINED insofar as Mr. Shmidt testifies about his co-counsel’s education and career. The remainder of the objections to Mr. Shmidt’s declaration and supplemental declaration (filed 4/14/2023) is OVERRULED because Mr. Shmidt possesses personal knowledge of his own statements and conduct and can provide an adequate foundation for correspondence that he sent and received. The objections to the declaration of Joseph Boufadel, Helix’s appellate counsel, are OVERRULED for the same reasons.

b. Clark and Freya Holdings’ Request for Judicial Notice (“RJN”) and Supplemental RJN

Clark and Freya Holdings requests the Court judicially notice a web page printout and document obtained from the California Franchise Tax Board (“FTB”), the search results from California Secretary of State’s website, and several minute orders issued in this action. The request for judicial notice is GRANTED as to the Secretary of State’s website and the minute orders, and DENIED as to the contents of the FTB’s website.

Section 425.16(c)(1) provides: “If the court finds that a special motion is frivolous or is solely intended to cause unnecessary delay, the court shall award costs and reasonable attorney’s fees to a plaintiff prevailing on the motion, pursuant to Section 128.5.” In turn, section 128.5 states, in relevant part: “A trial court may order a party, the party’s attorney, or both, to pay the reasonable expenses, including attorney’s fees, incurred by another party as a result of actions or tactics, made in bad faith, that are frivolous or solely intended to cause unnecessary delay.” (CCP, § 128.5, subd. (a).) “Frivolous” is defined as “totally and completely without merit or for the sole purpose of harassing an opposing party.” (Id., subd. (b)(2).) The mere fact that a motion is unsuccessful does not by itself establish that the motion was totally and completely without merit. (See In re Flaherty, (“Flaherty”) (1982) 31 Cal.3d 637.) Rather, a motion is frivolous when it indisputably has no merit and any reasonable attorney would agree that the appeal is totally and completely without merit. (See id. at 650.)

In their Anti-SLAPP Motion, Clark and Freya Holdings argued that the January 28 Email was sent in anticipation of litigation. The trial court and court of appeal disagreed, finding that: (1) there was no evidence that Clark and Freya Holdings contemplated filing suit against Helix at the time the email was sent, and (2) there was no evidence that Helix was contemplating litigation when Clark sent her email because Helix was unaware of Clark’s accusations until after the email was sent and Helix realized that she had transferred the funds.

To award sanctions, the Court needs to find either that: (1) the Anti-SLAPP Motion was frivolous or (2) the Motion was solely intended to cause unnecessary delay. The Court first addresses Helix’s contention that Clark and Freya Holdings’ Anti-SLAPP Motion was frivolous. (Motion, p. 3.) Helix emphasizes that Clark and Freya Holdings submitted no evidence in support of their motion other than Clark’s January 28 Email and failed to meet their initial burden to show that the January 28 Email was a pre-litigation statement. (Motion, p. 4.) Helix highlights the fact that Clark failed to submit a declaration or affidavit signed under penalty of perjury and suggests that this failure was intentional to avoid committing perjury. (Motion, p. 4.)

The Court notes that Clark and Freya Holdings cited primarily to one case in their Anti-SLAPP Motion to show that the January 28 Email is protected activity: Neville v. Chudacoff (2008) 160 Cal.App.4th 1255. (Second Supp. Shmidt Decl. (5/1/2023), Ex. U, pp. 12-13.) The Court also notes that the court of appeal, in affirming Judge Hofer’s denial of the Anti-SLAPP Motion, thoroughly distinguished the facts in Neville. (Supp. Shmidt Decl. (4/14/2023) Ex. T, p. 14 [“None of the same evidence of impending litigation is present here.”]) The court of appeal also succinctly stated: “We conclude the evidence in the record does not establish Clark imminently intended to commence litigation against Helix for its alleged breach of contracts with the Merchant LLC (she never did), or that Helix was seriously contemplating suing Clark at the time she sent the January 28 email. At most, the record established Clark anticipated a potential litigation.” (Ibid; p. 12 [stating Clark’s “subjective anticipation” of evidence is insufficient and citing to Eisenberg v. Alameda Newspapers, Inc. (1999) 74 Cal.App.4th 1359, 1379].)

In opposition to this motion, Clark belatedly declares that she “became aware” that Helix was paying the Merchants less than the amount due under the reseller agreements and that she informed Kim Ng “via Skype and email” that she “was aware of this situation, [sic] and demanded that he correct it.” (Opp., Ex. C, ¶ 15.) She also declares that at the time she sent the January 28 Email, “it was evident that [a lawsuit[ was going to be filed – if not by Helix, then by [herself] to protect the interests of each LLC against any further wrongdoings by or at the behest of Helix.” (Opp., Ex. 3, Clark Decl., ¶ 23.)

As Helix observes, this declaration raises questions about the intent and reasonableness of the Anti-SLAPP Motion. Two explanations are possible for the earlier failure to include this declaration: either (1) Clark and Freya Holdings filed a motion premised on a single factually distinguishable case with no other evidence than the January 28, 2021 Email because they were confident in the merits of their position, or (2) Clark and Freya Holdings did not want to spend the time and money to bolster a motion that was already being brought on questionable grounds. The former strains credulity and requires finding some degree of ineptitude in counsel, therefore the latter is more likely. But regardless of the reasons for Clark and Freya Holding’s tatics, the Court concludes that the Anti-SLAPP Motion was, in fact, frivolous.

The Court first addresses the argument that Helix’s request for costs related to the appeal are untimely. Clark and Freya Holdings argue that Helix cannot recover its costs and fees related to the appeal because it did not file a memorandum of costs within 40 days after the Court of Appeal issued its remittitur on January 19, 2023. This argument is not well-taken because on February 7, 2023, the parties appeared before this Court for a status conference and a briefing schedule was agreed-upon which would allow Helix to file a supplemental brief and declaration to account for costs and fees related to the appeal.

Next, the Court finds Clark and Freya Holdings’ argument regarding due process also unavailing. (Opp., p. 5.) Helix’s citation to Code of Civil Procedure section 245.15 instead of section 425.16 is plainly a typographical error that is easily disregarded when considering that the body of the motion references the Anti-SLAPP Motion several times as well as the correct statute. (See, e.g., Motion, p. 2.) Also, while it is true that Helix only states in its notice of motion that it seeks fees and costs against Clark, Freya Holdings, and their “counsel of record”, Helix’s proposed order, filed concurrently with its motion, identifies those attorneys of record specifically as Mr. Winkler and Gabriel Vadasz. Helix further confirmed in its reply brief that this motion is indeed directed towards Messrs. Winkler and Vadasz. (Reply, pp. 8-9.) Moreover, Mr. Winkler has had adequate notice that this motion is directed towards him. This motion was filed in September 2021 and in his declaration dated April 24, 2023, Mr. Winkler avers that he has “never been accused of filing a frivolous action or attempting to delay a case” and that he would “never engage in a bad faith litigation action or tactic” because “this behavior simply does not exist in [his] DNA.” (Winkler Decl., ¶ 40.) Based on this statement, it is evident that Mr. Winkler was on notice that the motion for fees was directed against him and there are no issues of due process.

The Court now turns to the reasonableness of Helix’s requested attorney’s fees. “It is well established that the amount of an attorney fee award under the anti-SLAPP statute is computed by the trial court in accordance with the familiar lodestar method.” (569 East County Boulevard LLC v. Backcountry Against the Dump, Inc. (2016) 6 Cal.App.5th 426, 432 [internal quotations and brackets omitted].) Under the lodestar method, the court tabulates the attorney fee lodestar by multiplying the number of hours reasonably expended by the reasonable hourly rate prevailing in the community for similar work.” (Ibid.)

With regard to the number of hours reasonably expended, “the verified time statements of the attorneys, as officers of the court, are entitled to credence in the absence of a clear indication the records are erroneous.” (Horsford v. Board of Trustees of California State University (2005) 132 Cal.App.4th 359, 396.) In determining the reasonable hourly rate, the “burden is on the successful party to prove the appropriate market rate to be used in calculating the lodestar.” (MBNA America Bank, N.A. v. Gorman (2006) 147 Cal.App.4th Supp. 1, 13.) The trial court may reduce the award where the fee request appears unreasonably inflated, such as where the attorneys’ efforts are unorganized or duplicative. (Serrano v. Unruh (1982) 32 Cal.3d 621, 635, fn. 21.)

Helix contends that it incurred $33,550 in attorney’s fees and $158.37 in costs to oppose the Anti-SLAPP Motion and prepare its fee motion. (See generally 9/23/2021 Motion). In its supplemental brief dated April 14, 2023, Helix requests an additional $70,322.25 for costs and fees incurred to oppose Defendants’ motion to stay, prepare supplemental briefing, and oppose the appeal. However, Helix offers no authority that it is entitled to recover fees and costs related to the motion to stay, or any other proceeding such as the ex parte hearings and status conferences. (See 4/14/2023 Supp. Shmidt Decl., ¶ 60.) Therefore, the Court only considers the fees and costs relating to the Anti-SLAPP Motion and the appeal.

Helix’s counsel, Denis Shmidt, contends that $500 an hour is a reasonable rate for an attorney with his education and experience of “at least 11 years.” (9/23/2021 Shmidt Decl., ¶¶ 20-28.) He also declares that opposing the Anti-SLAPP Motion took 39.8 hours and involved reviewing the motion, researching and drafting an opposition and supporting papers, reviewing the reply and the evidentiary objections, reviewing the court’s tentative, and preparing for and attending the hearing. (9/23/2021 Shmidt Decl., ¶ 16.) In his supplemental declaration filed on April 14, 2023, Mr. Shmidt adds that he spent 7.6 researching and drafting the supplemental briefs and supporting declarations for this fee motion and 9.5 hours working on the appeal of the Anti-SLAPP Motion. (4/14/2023 Shmidt Decl., ¶ 58-59.)

Mr. Shmidt attaches a copy of the Laffey Matrix as Exhibit J, which is prepared by the Civil Division of the United States Attorney’s Office for the District of Columbia and provides that an hourly rate of $532 is “reasonable” when determining attorney’s fees. Mr. Shmidt also states that based on the Laffey matrix and adjustments based on locality pay, a reasonable rate for an attorney like him would be between $539.98 and $576.69.

Joseph Boufadel was appellate counsel of record for Helix and declares that he spent 93.4 hours to review the trial court appellate record, review the opening brief, draft the answering appellate brief, review the reply brief, prepare for and participate in oral argument, and advise state court counsel on matters related to the appeal. (Boufadel Decl. (4/14/2023), ¶ 4.) He also declares that he spent 2.7 hours on Helix’s motion for attorneys’ fees. (Id., ¶ 3.) He states that an hourly rate of $500 is reasonable for his services because he has been in practice for more than 13 years and is experienced in representing clients on appeal. (Id., ¶¶ 6-7.)

In opposition, Clark and Freya Holdings argue that Helix’s request for fees is unreasonable because Messrs. Shmidt and Boufadel do not provide a detailed accounting of their time. Yet, Clark and Freya Holdings do not argue that the amount of time spent was unreasonable. Instead, they focus most of their brief on arguing that Helix’s counsel’s hourly rate of $500 is unjustifiably high. Clark and Freya Holdings submit declarations from their attorney, Robert James Winkler, as well as two other attorneys, M. David Meagher and Daniel Marshall. Mr. Winkler states that he has personally never billed a client $500 an hour and Messrs. Meagher and Marshall state that they charged $225 an hour when they were attorneys with only 10 years’ experience. (Meagher Decl., ¶ 15; Marshall Decl., ¶ 16.) These statements carry little weight, particularly as Messrs. Meagher and Marshall also state that they have been practicing for over 30 years, which means that they were charging an hourly rate of $225 more than 20 years ago. (Ibid.)

Accordingly, the Court finds that a lodestar of $500 is a reasonable market rate and GRANTS Helix’s motion for attorney’s fees in the amount of $80,400. Helix is also awarded its costs in the amount of $793.45. Clark, Freya Holdings, Robert J. Winkler, and Gabriel Vadasz are found jointly liable for the total amount of $81,193.45.

Because of the notice of joinder that was filed, Clark, the LLCs, and RPAC Holdings will collectively be referred to as “Defendants”; Clark, Freya Holdings, and RPAC Holdings will be collectively referred to as “the Clark Defendants”. All arguments made by Whole Vitality Living will be considered made by all of the LLCs. All arguments made by Clark and Freya Holdings will be considered made by all the Clark Defendants.

a. Defendants’ Request for Judicial Notice and Supplemental Request for Judicial Notice

Defendants request the Court judicially notice: (1) printouts from the Franchise Tax Board’s websites, (2) search results from the California Secretary of State’s Business Search website obtained on June 7, 2021 and another unspecified time period, (3) search results from the Wyoming Secretary of State Business Search website obtained on June 7, 2021, and (4) a copy of Helix’s original Complaint filed on May 7, 2021.

Helix objects to the request for judicial notice on the grounds that these documents are outdated, irrelevant, and unnecessary. The Court agrees that the search results are unnecessary because the FAC already includes allegations regarding the date and place of Helix’s registration. The Court also declines to take judicial notice of the printout from the FTB. Accordingly, the request for judicial notice is GRANTED only as to the original Complaint. (Evid Code, § 452, subd. (d).)

Helix asserts causes of action against the LLCs for breach of written contract (1st COA), breach of implied-in-fact contract (2nd COA), breach of the implied covenant of good faith and fair dealing (3rd COA), unjust enrichment/restitution (4th COA), and promissory estoppel (5th COA)

Helix asserts causes of action against Clark for breach of oral contract (6th COA), breach of implied-in-fact contract (7th COA), breach of the implied covenant of good faith and fair dealing (8th COA), unjust enrichment/restitution (9th COA), promissory estoppel (10th COA), intentional interference with contractual relations (11th COA), libel per se (12th COA), trade libel (13th COA), defamation (14th COA), misappropriation of trade secrets (15th COA), fraud (19th COA), negligent misrepresentation (20th COA), and breach of fiduciary duty (22nd COA).

Helix asserts causes of action against the Clark Defendants for conversion (16th COA), theft and receiving stolen property (21st COA), violation of the California Computer Data Access and Fraud Act (17th COA), violation of the Federal Computer Fraud and Abuse Act (18th COA), and unfair competition pursuant to California Business & Professions Code section 17200 et seq. (23rd COA).

As against all Defendants, Helix also seeks declaratory relief (24th COA) and an accounting (25th COA).

Mr. Winkler declares that “any further attempt to meet and confer [was] unnecessary” after Helix served its FAC because he and Mr. Shmidt had already met conferred about the original Complaint and only four allegations in the FAC were changed. (Winkler Decl., ¶ 5.) That is not what the law provides. Code of Civil Procedure section 430.41(a) states: “If an amended complaint . . . is filed, the responding party shall meet and confer again with the party who filed the amended pleading before filing a demurrer to the amended pleading.” The Court recognizes that the parties seem to be engaged in intractable conflict and that in this particular instance, the issues raised in the demurrer could not be informally resolved. Nevertheless, to preserve Court resources, the Court cautions the parties that failure to meet and confer as required by Code in the future may lead to the moving party’s motion being taken off calendar until the parties have completed the meet and confer process in good faith.

Defendants argue that Helix lacks standing to bring its claims. (Demurrer, pp. 12-14.) It is undisputed that Helix did not register with the California Secretary of State until June 15, 2021. However, the parties disagree as to whether Helix, a Wyoming limited liability company, can bring this action because the underlying events occurred while it was not registered with the California Secretary of State.

Defendants rely in part on Corporations Code section 17708.07, which provides that “[a] foreign limited liability company transacting intrastate business in this state shall not maintain an action or proceeding in this state unless it has a certificate of registration to transact intrastate business in this state.” (Corp. Code § 17708.07, subd. (a).) However, cases interpreting similar statutes involving foreign corporations have examined the difference between the capacity to sue and standing. (Color-Vue, Inc. v. Abrams (1996) 44 Cal.App.4th 1599, 1603–1604 (Color-Vue) [citing Traub Co. v. Coffee Break Service, Inc. (1967) 66 Cal.2d 368, 370].) In Color-Vue, a corporation which failed to pay franchise taxes was found to only lack capacity to sue due to a suspension of corporate powers. (Color-Vue, supra, 44 Cal.App.4th at p. 1605.) Similarly, in United Medical Management Ltd. v. Gatto (1996) 49 Cal.App.4th 1732, 1740 (United Medical), the court of appeal acknowledged that a foreign corporation may be subject to penalties for failure to pay taxes, but that in those instances, the matter should be stayed to permit the foreign corporation to comply [by qualifying and paying fees, penalties, and taxes].”

Helix registered with the California Secretary of State shortly after commencing this action. Also, although it was unnecessary, it added allegations to its FAC about its registration. (Color-Vue, supra, 44 CalAPp.4th at p. 1605 [“Unless required by a governing statute, a plaintiff’s capacity to sue is not an element of a cause of action.”].) Therefore, the Court rejects Defendants’ argument about Helix’s “standing” to bring suit.

Next, Defendants argue that Helix still cannot maintain its action because the contracts it entered into with Clark and the LLCs are voidable. (Demurrer, p. 14.) Defendants rely on White Dragon Productions, Inc. v. Performance Guarantees, Inc. (1987) 196 Cal.App.3d 163 (White Dragon). In White Dragon, several parties asserted the right to the funds in a bank account in an interpleader action. Two of the parties, Performance Guarantees and White Dragon Productions, had entered into a “Completion and Security Agreement” and Performance Guarantees claimed that it was entitled to the funds pursuant to this agreement. (Id. at pp. 166-168.) Performance Guarantees moved for summary judgment and White Dragon Productions opposed, contending that the agreement was voidable at White Dragon Production’s election because Performance Guarantee failed to file state franchise tax returns and pay state franchise taxes. (Id. at p. 168.) White Dragon Productions also filed a motion for summary judgment. (Ibid.) The trial court granted Production Guarantee’s summary judgment motion and denied White Dragon Production’s summary judgment motion. (Ibid.) White Dragon Productions appealed and the court of appeal reversed the trial court’s order granting the summary judgment motion. (Id. at pp. 172-173.) The court of appeal concluded that the Agreement was voidable and suggested that White Dragon Productions refile its motion for summary judgment (which it held was properly denied on other grounds) and “explicitly request the trial court to render the Agreement void.” (Id. at p. 173.)

The White Dragon court relied on Revenue and Taxation Code section 22304, which was repealed and replaced by section 22304.1 in 1990. This new section states, in relevant part:

b) If a foreign taxpayer that neither is qualified to do business nor has an account number from the Franchise Tax Board, fails to file a tax return required under this part, any contract made in this state by that taxpayer during the applicable period specified in subdivision (c) shall, subject to Section 23304.5, be voidable at the request of any party to the contract other than the taxpayer.

(Rev. and Tax. Code, § 23304.1, subd. (b).) In turn, section 23304.5 requires that a taxpayer be given a “reasonable opportunity to cure the voidability under Section 23305.1.” (Id., § 23304.5.) “If the court finds that the contract is voidable under Section 23304.1, the court shall order the contract to be rescinded. However, in no event shall the court order rescission of a taxpayer's contract unless the taxpayer receives full restitution of the benefits provided by the taxpayer under the contract.” (Ibid.)

Here, Helix pleads it is “properly registered as a foreign entity with the California Secretary of State and has paid all required fees.” (FAC, ¶ 21.) Helix also pleads that it is “currently up to date on all of its required California tax filings and has paid all required California taxes.” (FAC, ¶ 24.) Defendants contend that the FAC is deficient because Helix fails to plead specific allegations demonstrating that it has sought and obtained relief from contract voidability and paid all fines in connection with this relief. The Court finds this to be premature. At this stage of the litigation, the allegations that Helix is appropriately registered and has filed and paid taxes as required is sufficient.

Defendants’ demurrer to the entire FAC, and the 11th, 24th, and 25th Causes of Action on this ground is OVERRULED.

Helix alleges that it entered into written agreements with each of the LLCs and that the terms of those agreements are identical to the agreement attached as Exhibit A. (FAC, ¶ 132.) The LLCs argue that this allegation is insufficient because Helix fails to attach any executed agreements or to set forth the terms of the contracts. (Demurrer, pp. 14-15.) The Court disagrees. “In an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198–199.) On reply, the LLCS also argue that this allegation is deficient because Helix only alleges “on information and belief” without stating the facts which form the basis of that belief. (Reply, p. 12.) This argument is not well-taken. Helix’s FAC states nearly 20 pages of allegations setting forth the factual basis for its claims. Therefore, the demurrer to the First Cause of Action is OVERRULED.

Defendants demur to the Second and Sixth Causes of Action for breach of implied-in-fact contract against the LLCs and Clark, respectively, and the Seventh Cause of Action for breach of an oral contract against Clark. (Demurrer, p. 15.) Defendants again argue that the FAC lacks specificity as to the terms and conditions of the alleged agreements. This is unavailing. As stated above, Helix sets forth detailed factual allegations in its FAC describing the conduct that created the implied contracts.

Defendants also argue that the agreements with the LLCs and Clark had to be in writing because they could not be performed within a year from the making thereof. (Demurrer, p. 15.) The statute of frauds, codified at Civil Code section 1624, applies to those contracts “which cannot be performed” within a year. (Connelly v. Venus Foods, Inc. (1959) 174 Cal.App.2d 582, 586 [citing Hollywood M.P. Equipment Co. v. Furer (1940) 16 Cal.2d 184, 187.) A court applying the statute of frauds is presented with two questions: (1) does the statute apply to the contract at issue?; and if so, (2) are the statute's requirements of a properly subscribed writing met? (Westside Estate Agency, Inc. v. Randall (2016) 6 Cal.App.5th 317, 323.)

Helix alleges that the contractual relationships with the LLCs “were cemented for a minimum of one year, and automatically renewed if not terminated prior to the end of the term.” (FAC, ¶ 225; Ex. A, ¶ 5.) Therefore, according to these allegations and the statute of frauds, the statute of frauds applies and the agreements with the LLCs are invalid unless the agreement “or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent.” (Civ. Code, § 1624.) A memorandum satisfies the statute of frauds if “it identifies the subject of the parties’ agreement, shows they made a contract, and states the essential contract terms with reasonable certainty.” (Sterling v. Taylor (2007) 40 Cal.4th 757, 765.) “Only the essential terms must be stated, ‘details or particulars’ need not [be]. What is essential depends on the agreement and its context and also on the subsequent conduct of the parties.” (Id. at p. 766.) Helix fails to allege the existence of a properly subscribed writing by the LLCs. Therefore, the demurrer to the Second Cause of Action is SUSTAINED.

However, the statute of frauds does not apply to employment contracts for an indefinite period. There is nothing alleged in the FAC that would have prevented Clark from terminating her relationship with Helix within a year of agreeing to recruit individuals for Helix. Therefore, the demurrer to Helix’s Sixth and Seventh Causes of Action is OVERRULED.

The covenant of good faith and fair dealing is implied by law in every contract, and it acts “as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-1032.)

Defendants argue that Helix fails to plead sufficient facts to state a claim for breach of the covenant of good faith and fair dealing against the LLCs and Clark because the causes of action are “vague and do nothing more than allege a mere contract breach.” (Demurrer, p. 16.)

In opposition, Helix argues that the LLCs failed to act in good faith when they ceased all communication with Helix, condoned the removal of money from their accounts by Clark, and sold their assets to Clark, thereby denying Helix any future benefit under the contract. (Opp., p. 12 [citing to FAC ¶¶ 146-151.) Helix also argues that it adequately pled that Clark stole its login credentials, locked Helix out of the LLCs’ accounts, transferred money, and sent a defamatory email to each LLC, which ultimately resulted in the destruction of Helix’s entire business. (Ibid. [citing FAC, ¶¶ 191-198].)
The Court agrees that Helix has stated a valid claim for breach of the implied covenant of good faith and fair dealing. The alleged actions may not be breaches of the express terms of the agreements, but they frustrate the purpose of those agreements.

There is no cause of action for unjust enrichment, strictly speaking; rather, unjust enrichment is a basis for obtaining restitution based on quasi-contract or imposition of a constructive trust. (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1490.) Under the law of restitution, an individual may be required to make restitution if he is unjustly enriched at the expense of another. (Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 51.) A person is enriched if he receives a benefit at another's expense. (Ibid.) The term “benefit” denotes any form of advantage; thus, a benefit is conferred not only when one adds to the property of another, but also when one saves the other from expense or loss. (Ibid.) Yet, even when a person has received a benefit from another, he is required to make restitution only if the circumstances of its receipt or retention are such that, as between the two persons, it is unjust for him to retain it. (Ibid.)

Defendants argue that Helix’s unjust enrichment and restitution claims are vague and uncertain. (Demurrer, p. 16.) They argue that Helix must plead ultimate facts that unjust enrichment occurred – including which specific LLCs benefitted and a dollar value -- because the LLCs are entitled to one-percent compensation. On reply, they add that unjust enrichment is a legal theory and not a cause of action. (Reply, p. 15.)

Helix adequately states a claim for restitution against the Merchants by alleging that it operated their e-commerce businesses on their behalf but the Merchants failed to remit 99% of their net profits to Helix as agreed. (FAC, ¶¶ 160-161.) Similarly, Helix states a valid claim for restitution against Clark because it alleges, among other things, that Clark was paid for her purported recruitment of owners, but that: (1) Clark did not have the Merchants execute the agreements, and (2) Clark misused the login credentials to the Merchants’ Operating Accounts to transfer the funds within and revoked Helix’s access to them. (FAC, ¶¶ 201-204.)

The elements of promissory estoppel are (1) a promise, (2) a reasonable expectation for the promise to induce action or forbearance on the part of the promisee or a third person, (3) detrimental reliance, and (4) injustice which can be avoided only by enforcement of the promise. (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 803, reh’g denied (Apr. 11, 2013), review denied (July 10, 2013).)

Defendants argue that Helix must state the promises made by each of the LLCs and provide them with the ability to discern if some of the LLCs made different promises. This argument is not well-taken. The specifics of each alleged promise can be determined in discovery.

Defendants also argue that Helix fails to show any harm because it has already collected 99% of the LLCs’ profits for two years. This ignores the extensive facts pleaded in the FAC about how the LLCs (1) failed to cooperate with Helix by revoking Helix’s access to their Operating Accounts and (2) failed to remit the 99% of their profits as promised. (FAC, ¶¶ 160-165.)

Helix has also pled sufficient facts in support of its promissory estoppel claim against Clark. Helix pled that Ms. Clark promised to work towards Helix’s interests in recruiting individuals and obtaining the necessary contracts, that Helix reasonably relied on her promise, and that Helix was injured by this reliance after Ms. Clark likely failed to obtain the necessary contracts, stole from Helix, used the stolen funds to purchase the LLCs, and withheld owed funds from Helix, causing Helix harm. (FAC, ¶¶ 213-222.)

Clark demurs to these causes of action on the grounds that her January 28 Email is protected by the litigation privilege and only expressed her opinion. (Demurrer, pp. 17-18.) The argument based on the litigation privilege has already been rejected because there was no anticipation of litigation at the time the email was sent. Furthermore, Clark is not expressing her opinion in her January 28 Email, but is representing that Helix was in material breach of its agreements with the Merchants. At this stage, Helix has adequately pled a cause of action for libel per se and defamation and the demurrer to the 12th and 14th Causes of Action is OVERRULED.

However, Helix has not pleaded a claim for trade libel. “Trade¿libel¿is the publication of matter disparaging the quality of another’s property, which the publisher should recognize is likely to cause pecuniary loss to the owner. [Citation.] The tort encompasses ‘all false statements concerning the quality of services or product of a business which are intended to cause that business financial harm and in fact do so.’ [Citation.] To constitute¿trade¿libel, a statement must be false.”¿(City of Costa Mesa v. D’Alessio Investments, LLC (2013) 214 Cal.App.4th 358, 376.) Clark did not disparage the quality of Helix’s services or products – such as Helix’s e-commerce services or health supplements – in her January 28 Email. Therefore, the demurrer to the 13th Cause of Action is SUSTAINED

Defendants argue that Helix fails to describe with reasonable particularity the claimed trade secret. (Demurrer, p. 18.) This is inaccurate. Helix adequately identifies the trade secret as “Helix’s login credentials to the LLC’s Operating Accounts as well as its Agreements with the LLCs.” (FAC, ¶ 287.)

Nonetheless, the Court sustains the demurrer because Defendants correctly point out that the FAC fails to identify what actions were taken to preserve the secret and what information was conveyed to Clark to show she had knowledge of the alleged trade secret. (Demurrer, p. 19.)

The elements of a cause of action for fraud are (1) a misrepresentation, which includes a concealment or nondisclosure; (2) knowledge of the falsity of the misrepresentation, i.e., scienter; (3) intent to induce reliance on the misrepresentation; (4) justifiable reliance; and (5) resulting damages. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173.) The elements of a cause of action for negligent misrepresentation are the same, except that the plaintiff must show that the defendant is charged with making false statements, honestly believing that they are true, but without reasonable ground for such belief. (Buy v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407.)

Defendants argue that Helix’s fraud and negligent misrepresentation claims are not specific enough and that Helix fails to plead the required elements of scienter and fraudulent intent. (Demurrer, p. 21.) Helix fails to plead to whom the alleged misrepresentations were made, when or how they were made, and that Clark knew that those misrepresentations were false (or without reasonable grounds for believing that they are true).

To plead a cause of action for breach of fiduciary duty, a plaintiff must allege facts showing the existence of a fiduciary duty owed to that plaintiff, a breach of that duty and resulting damage. (Pellegrini v. Weiss (2008) 165 Cal.App.4th 515, 524.) A fiduciary duty is founded upon a special relationship imposed by law or under circumstances in which “confidence is reposed by persons in the integrity of others” who voluntarily accept the confidence. (Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg (1989) 216 Cal.App.3d 1139, 1150; see CACI 4100, et seq.)

Helix alleges that Clark breached her fiduciary duties of loyalty and care when she stole the login credentials to each of the LLC’s Operating Accounts, transferred the funds, and used the funds to purchase the LLCs. (FAC, ¶¶ 366-371.) Defendants argue that Helix fails to allege facts showing that the nature of its relationship with Clark imposed a fiduciary duty upon her. But, Helix adequately alleges that Clark was its agent (even if she was an independent contractor) and was placed in a position of trust as the main point of contact between the LLC owners and Helix. (FAC, ¶¶ 362-363.)

To succeed on a conversion claim against the Clark Defendants, Helix must show: (1) its ownership of or right to possess the property; (2) a wrongful act or disposition of property rights; and (3) damages. (Hodges v. County of Placer¿(2019) 41 Cal.App.5th 537, 551.) Money cannot be the subject of a cause of action for conversion unless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment. (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Well & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395.)

Helix alleges it has a right of ownership and possession of 99% of the net revenues held in the LLCs’ Operating Accounts and Reserve Accounts and that Clark and her alter egos, RPAC and Freya Holdings, have stolen a total of $460,000. (FAC, ¶¶ 297-300.) This is adequate to state a claim for conversion; the specifics may be determined through discovery. The demurrer to the 16th COA is OVERRULED.

Penal Code section 496 applies when a person “buys or receives any property that has been stolen or has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained.” (Penal Code, § 496, subd. (a).) The purpose of this statute was “‘to dry up the market for stolen goods.’ [Citation.]” (Siry Investment, L.P. v. Farkhondehpour (2020) 45 Cal.App.5th 1098, 1136.) “Because imposing treble damage in cases alleging fraud, misrepresentation, breach of fiduciary duty and other torts outside the context of stolen property does nothing to ‘advance the legislative purpose to “dry up the market for stolen goods,” ’ the statute does not apply broadly to torts involving the improper diversion of cash through fraud, misrepresentation and breach of fiduciary duty. (Id. at p. 1137.) This is the crux of Helix’s Complaint, that Clark redirected funds from the LLCs to herself through Freya Holdings. Accordingly, the demurrer to the 21st COA is SUSTAINED.

q. Violations of the California Computer Data Access and Fraud Act (17th COA) and Federal Computer Fraud and Abuse Act (18th COA)

The California Computer Data Access and Fraud Act (“CDAFA”) is essentially an “anti-hacking” statute that “prohibits unauthorized access to computers, computer systems, and computer networks, and provides for a civil remedy in the form of compensatory damages, injunctive relief, and other equitable relief.” (McGowan v. Weinstein (C.D. Cal. 2020) 505 F. Supp. 3d 1000, 1020. To state a cause of action under the CDAFA, a plaintiff must allege: (1) it owned a computer system or data; (2) that the defendant knowingly accessed the computer system or data without permission; (3) defendant altered, damaged, deleted, or used the data in an unauthorized way to defraud or wrongfully obtained money or property; and (4) that plaintiff was harmed by defendant’s conduct. (CACI No. 1812; Cal. Pen. Code §§ 502(c)(1); 502(e)(1); McGowan, supra, 505 F. Supp. 3d at 1020.

The Federal Computer Fraud and Abuse Act (CFAA) similarly provides that whoever “knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value...shall be punished.” 18 U.S.C.§ 1030, subd. (a)(4).)

Defendants argue that: (1) Helix cannot allege any unauthorized access because Clark owns the LLCs at issue and (2) Helix does not plead an injury. This argument requires a purposefully obtuse reading of the FAC and is not well-taken because Helix alleges that Clark’s use of the login credentials “predate [her] alleged purchase of the LLCs.” (FAC, ¶¶ 308, 319.) The demurrer to the 17th and 18th COA is OVERRULED.

Last, Defendants argue that Helix’s claim under Business and Professions Code section 17200 et seq. (the “UCL”) fails because Helix cannot recover damages or attorney’s fees under the UCL. However, Helix’s requested relief under the UCL does not include attorneys’ fees and only includes restitution and an injunction. (FAC, ¶ 389.) The demurrer to the 23rd COA is OVERRULED.

The demurrer is SUSTAINED as to the 2nd, 13th, 15th, and 21st Causes of Action with 20 days’ leave to amend.

The demurrer is OVERRULED as to the 1st, 3rd through 12th, 14th, 16th through 20th, and 22nd through 25th Causes of Action.

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.

	Anti-SLAPP Motion	Fees Motion	Total
Denis Shmidt	39.8 hours x $500 = $19,900	17.3 hours x $500 = $8,650 7.6 hours x $500 = $3,800	$32,350
Joseph Boufadel	93.4 hours x $500 = $46,700	2.7 hours x $500 = $1,350	$48,050
Fees Total			$80,400