Judge: William D. Claster, Case: 21-01205020, Date: 2022-10-07 Tentative Ruling
Cross-Defendants ECCOMERCE SAAS LLC, OFI SAAS LLC, and 488 Club LLC's Demurrer to JETA D Enterprise's Second Amended Cross-Complaint ROA 130
Cross-Defendants Ecommerce SAAS LLC, 448 Club LLC, and OFI SAAS LLC demur to the Second Amended Cross-Complaint (“SAXC”) of Defendants/Cross-Complainants Jeta D Enterprise, Jeta Dinka, and Dollins Akembom. Cross-Defendant Electronic Commerce LLC has filed a joinder to the demurrer. The Court rules as follows:
1. The Demurrer is MOOT as to the Tenth Cause of Action, which /Cross-Complainants have voluntarily withdrawn.
2. The demurrer is OVERRULED as to alter ego liability.
Demurring Cross-Defendants shall answer the SAXC on or before October 21, 2022.
1. Overview
In evaluating a demurrer, the Court is guided by long-settled rules. The Court “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) “The complaint must be construed liberally by drawing reasonable inferences from the facts pleaded.” (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.) “Further, [the Court] gives the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)
Cross-Complainants filed the SAXC on 05-06-22. (ROA 111.) While a tenth cause of action for constructive trust was added without seeking leave (CCP § 473) from the Court, Cross-Complainants have voluntarily withdrawn this claim. Accordingly, the only dispute concerns the sufficiency of the alter ego allegations.
2. Unity of Ownership Element of Alter Ego Doctrine
On 04-22-22, the Court sustained Cross-Defendants’ demurrer to the First Amended Cross-Complaint with 15 days leave to amend, ruling as follows (ROA 105):
The bulk of the allegations in the FACC are against Cross-Defendant Electronic Commerce, LLC. The basis for the alleged liability of the moving Cross-Defendants is the alter ego doctrine.
…
Here, Cross-Complainants allege that ‘At all relevant times, Cross-Defendants Electronic Commerce LLC, Ecommerce SAAS LLC, OFI SAAS LLC, 488 Club LLC, and Tangram had a unity of interest and ownership between Cross-Defendants such that any separateness between them has ceased to exist.’ (FACC, at ¶ 12.) But the FACC alleges that Electronic Commerce is owned by Darnell Ponder and Khaazra Maaranu. (FACC, at ¶¶ 15-16.) Cross-Defendant 488 Club LLC is owned by Darnell Ponder, Jon Lakatos, and Michael Carnevale. (FACC, at ¶ 127.) Cross-Defendants Ecommerce SAAS and OFI SAAS are owned by 488 Marque Trust. (FACC, at ¶¶ 126, 128.) As a result, Cross-Complainants have failed to sufficiently allege a unity of ownership.
“In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exists. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538).
“Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.” (Id. at 538-39). “Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers.” (Id.)
As explained by the court in Leek v. Cooper (2011) 194 Cal.App.4th 399, a plaintiff “must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.” (Id. at 415). Moreover, “[t]he allegation that a corporation is the alter ego of the individual stockholders is insufficient to justify the court in disregarding the corporate entity in the absence of allegations of facts from which it appears that justice cannot otherwise be accomplished.” (Meadows v. Emett & Chandler (1950) 99 Cal.App.2d 496, 498-99).
However, as noted by the Court in Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, a plaintiff need only plead “ultimate rather than evidentiary facts,” to support alter ego liability. (Id. at 236). “Moreover, ‘less particularity [of pleading] 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,’ which certainly is the case here.” (Id.; accord Greenspan v. Ladt, LLC (2010) 185 Cal.App.4th 1413, 1445 [“Courts have followed a liberal policy of applying the alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure.”].)
Here, Cross-Complainants make several allegations that Cross-Defendants share a unity of ownership:
On information and belief, “Mr. Ponder, Mr. Lakatos, Mr. Carnevale, Electronic Commerce LLC, Ecommerce SAAS LLC, OFI SAAS LLC, and 488 Club LLC share a unity of interest because they involve the same or similar owners and officers, and that Mr. Ponder, Mr. Lakatos, and Mr. Carnevale have apparent control of all of the entity cross-defendants.” (¶ 131.)
Also on information and belief the SAXC states: “Mr. Ponder (owner and officer of Electronic Commerce, and officer of Ecommerce SAAS LLC dba Tangram), Mr. Lakatos (former employee of CBCal, officer of Electronic Commerce, and officer of Ecommerce SAAS LLC dba Tangram), and Mr. Carnevale (merchant of Electronic Commerce and employee of Ecommerce SAAS LLC dba Tangram), by and through 488 Club LLC, control and/or own 488 Marque Trust, which in turn is the sole member of both Ecommerce SAAS LLC dba Tangram as well as OFI SAAS LLC.” (¶ 138; accord ¶ 14 [“Ozark Marketing LLC is owned by The Lak Living Trust and 488 Marque Trust—the latter of which is the same trust that owns Ecommerce SAAS LLC dba Tangram as well as OFI SAAS LLC.”].)
Additionally, “Mr. Ponder…Mr. Lakatos…and Mr. Carnevale…own or control…” Ecommerce SAAS LLC through their ownership or controlling interest in 488 Marque Trust.” (¶ 139.) “Mr. Ponder…Mr. Lakatos…and Mr. Carnevale…own or control…” OFI SAAS LLC through their ownership or controlling interest in 488 Marque Trust.” (¶ 142.)
These allegations regarding the 488 Marque Trust are contained in a new section entitled “Alter Egos.” (See ¶¶ 129-172.)
While Cross-Defendants challenge the allegations as deficient because they are based on “information and belief,” they offer no authority for the proposition that pleading on this basis renders the allegations inadequate. In short, these new allegations, along with previous allegations that Cross-Defendants share the same office space, officers, and employees, and are engaged in the business of providing payment processing services and controlled by the same individuals (e.g., ¶¶ 110-114, 127, 149, 153, 161), are sufficient to support claims of alter ego liability. (Sonora Diamond Corp. v. Superior Court, supra at 538-39.).
3. Inequitable Result
Cross-Defendants also assert the SAXC lacks allegations supporting an inequitable result if the alter ego doctrine was not applied. The Court is unpersuaded. As Cross-Complainants allege, tracking down assets to satisfy a judgment is complicated and will likely prove difficult (¶¶ 120, 167 [“It is an open secret that Electronic Commerce has been drained of assets, and Tangram has become flush with money.”], 170, 176, 177 [“…the ill-gotten gains deposited with Bancorp are at substantial risk of being returned to Tangram/Electronic Commerce and thus dissipated by the various bad actors…”], 179.) Additionally, various actions by Cross-Defendants are alleged to have been intentional in order to deceive (¶¶ 66, 86, 155) and that intention is expressly alleged in the causes of action. Indeed, the Court notes that Cross-Defendants have failed to respond to the arguments in the Opposition as to this element.