Judge: Yolanda Orozco, Case: 21STCV41091, Date: 2022-09-30 Tentative Ruling
Case Number: 21STCV41091 Hearing Date: September 30, 2022 Dept: 31
DEMURRER TO THE SECONDED AMENDED COMPLAINT IS SUSTAINED, IN PART
Background
On November 08, 2021, IHeartMedia + Entertainment Inc. (“Plaintiff”) filed a Complaint against Special Entertainment Events, Inc. (“SEE).
The operative Second Amended Complaint adds Defendants SEE Attractions, Inc., (“SAI”) and SEE Global Events, Inc. (“SGEI”) and Does 1 to 10 and asserts causes of action for:
1) Breach of Accord Agreement (against Defendant SEE and Does 1 to 10)
2) Successor Liability (against Defendants SAI, SGEI, and Does 1 to 10)
3) Statutory Liability for Violation of Bulk Sale Statutes (against Defendants SAI, SGEI, and Does 1 to 10)
4) Intentional Voidable Transfer (against all Defendants)
5) Constructive Voidable Transfer (against all Defendants)
6) Constructive Voidable Transfer (against all Defendants)
On May 24, 2022, Defendants SEE, SAI, and SGEI filed a Demurrer without a Motion to Strike Plaintiff’s SAC.
On September 14, 2022, Plaintiff filed an opposition. On September 21, 2022, Defendants filed a reply.
Legal Standard
A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (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.)¿ To test the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded.¿ (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.)¿ A demurrer “does not admit contentions, deductions or conclusions of fact or law.”¿ (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)¿¿
MEET AND CONFER
Before filing a demurrer, the demurring party is required to meet and confer with the party who filed the pleading demurred, in person or telephonically, to determine whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc. (CCP) § 430.41.)
Defense counsel, Burce A. Fields, asserts that on March 17, 3033, he sent Plaintiff an email pointing out the deficiencies in the Second Amended Complaint, but no resolution was reached. (Fields Decl. Ex. C.) Thus, the meet and confer requirement is met.
EVIDENTIARY OBJECTIONS
Defendants filed evidentiary objections to the Declaration of Marta Roza. Having failed to number their objection, the Court reminds Defendants that under the California Rules of Court, rule 3.1354, objections “must be referenced by the objection number [.]
Defendants’ objections are as follows:
· Paragraph 3 L10-12: “Attached hereto as Exhibit “A” is a true and correct copy of an email I received from Defendant’s counsel, M. Singer. As can be seen therefrom, Ms. Singer states that "Special Entertainment Events is nonoperational and has no money.”
· Paragraph 4. L14-17 “ Attached hereto as Exhibit “B” is the “home page” of the SGEI website (https://www.seeglobalentertainment.com/). As can be seen therefrom it states that, “SEE GLOBAL ENTERTAINMENT INC (SEE a family of companies representing the finest in themed entertainment specializing in global touring exhibition...”)
· Paragraph 5 “Attached hereto as Exhibit “C” is another page of the SGEI website (https://www.seeglobalentertainment.com/clientportal/luminight-lantern-festival/). As can be seen therefrom, SEE still advertises on the SAI and/or SGEI website (contrary to the assertion made by Defendants that SGEI and SEE are separate entities that do separate businesses and do not communicate with each other (as stated in the verified responses received to date) and that SEE is non-operational.
A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (CCP §§ 430.30, 430.70.)¿¿Accordingly, Defendants’ evidentiary objections are SUSTAINED in their entirety.
REQUEST FOR JUDICIAL NOTICE
Defendants request Judicial Notice of the following:
1) The First Amended Complaint in the subject action, a copy of which is attached hereto and marked as Exhibit A
2) Records of the California Secretary of State regarding the corporate status of Special Entertainment Events, Inc. is attached hereto and marked as Exhibit D.
3) Records of the California Secretary of State regarding the corporate status of SEE Attractions Inc. which is attached hereto and marked as Exhibit E.
4) Records of the California Secretary of State regarding the corporate status of SEE Global Events, Inc. which is attached hereto and marked as Exhibit F.
The Court notes that no Request for Judicial Notice of Exhibits marked B or C was submitted.
Accordingly, pursuant to California Evidence Code section 452 subdivisions (c) and (d), the Defendants’ request for Judicial Notice is GRANTED.
Discussion
Special Entertainment Events, Inc. (“SEE”), SEE Attractions, Inc., (“SAI”) SEE Global Events, Inc., (“SGEI”), (collectively “Defendants”) demurrer to Plaintiff’s Second Amended Complaint (SAC), 2nd, 3rd, 4th, 5th, and 6th causes of action arguing that the causes of action fail to state sufficient facts or are unintelligible. (Code Civ. Proc., §§ 430.10 subds. (e) and (f).)
Plaintiff asserts that on September 09, 2020, Plaintiff entered into a written Payment Agreement with Defendant SEE to pay the balance due of $30,481.00 in installments. (SAC ¶ 9, Ex. 1) Plaintiff alleges that Defendants breached the Agreement by failing to pay on November 1, 2020. (SAC ¶ 10.)
As to the 2nd and 3rd causes of action, Plaintiff asserts that Defendants SAI and SGEI are both the successor/fraudulent transferee Defendants. Accordingly, Plaintiff asserts that SAI and SGEI are liable as successors of SEE and that as the new entities, SAI and SGEI violated the Bulk Sales Notice by thwarting creditors of the prior entity SEE. (SAC ¶¶ 8 -17.)
The 4th, 5th, and 6th causes of action are asserted against all Defendants based on Plaintiff’s belief that debtor SEE created or runs SAI and SGEI. (SAC ¶¶ 18 – 35.)
Second COA: Successor Liability
In California, the general rule is that a company that acquires the assets of a seller is not
responsible for the seller’s liabilities. (Ray v. Alad Corp. (1977) 19 Cal. 3d 22, 28.) However, Ray outlined four exceptions to the general rule:
“As typically formulated the rule states that the purchaser [of corporate assets] does
not assume the seller’s liabilities unless (1) there is an express or implied agreement
of assumption, (2) the transaction amounts to a consolidation or merger of the two
corporations, (3) the purchasing corporation is a mere continuation of the seller, or
(4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping
liability for the seller’s debts.”
(Id.)
Based on Ray, Defendants assert that SAI and SGEI cannot be held liable as successors of SEE when SEE continues to exist. Defendant further asserts that Plaintiff has failed to plead sufficient facts to show that one of the four exceptions outlined in Ray applies to SAI and SGEI.
The SAC alleges that each of the Defendants are “agents, servants, employees and/or alter ego of each of the other remaining Defendants” and that they acted in concert or at the request of the other Defendants. (SAC ¶ 4.) On or about February 26, 3030, Defendant SAI and SEI “acquired by purchase, assignment, foreclosure, or otherwise all or substantially all of the assets and/or business of Defendant SEE by and through a transaction that amounted to a consolidation or merger of SEE and SAI and/or SGEI.” (SAC ¶ 13) Plaintiff believes no adequate consideration was given for the transaction and that one or more persons were “officers, directors or stockholders of both SEE and SAI and/or SGEI.” (SAC ¶¶ 14, 15.) Consequently, SAI and SGEI “merely continued the same business as had been conducted by SEE.” (SAC ¶ 16.) As such, SAI and/or SGEI and Does 1 to 10 are successors in interest to and/or assignee of SEE. (SAC ¶ 14.)
First, the plaintiff can assert a cause of action against SEE while asserting that SAI and SGEI are successors in interest because the plaintiff can plead alternative theories but will be limited to a single recovery. (See Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1402 [“When a pleader is in doubt about what actually occurred or what can be established by the evidence, the modern practice allows that party to plead in the alternative and make inconsistent allegations.”].) Therefore, Plaintiff can maintain a cause of action against SEE and both SAI and SGEI for the same conduct.
Second, although Plaintiff alleges successor liability based on the belief that SAI and SGEI are a “mere continuation” of SEE, Plaintiff pleads legal conclusions rather than ultimate facts. In evaluating a demurrer, the Court accepts the complainant’s properly-pled facts as true, and ignores contentions, deductions, and conclusory statements. (Daar v. Yellow Cab Co. (1976) 67 Cal.2d 695, 713; Serrano v. Priest (1971) 5 Cal.3d 584, 591.) Here, Plaintiff failed to plead facts to support its belief that SAI and SGEI are mere continuation entities of SEE or why it believes inadequate consideration was provided for the purchase of SEE. Instead, Plaintiff asserts that SAI and SGEI are successors without providing any basis for its allegation.
Plaintiff asserts that Mr. Biallas holds every office of each of the named Defendant entities, but such an assertion is not found in Plaintiff’s SAC, nor is the basis for such belief alleged.
Accordingly, Defendants’ demurrer to the 2nd cause of action is SUSTAINED WITH LEAVE TO AMEND.
Third COA: Violation of Bulk Sales Statutes
“The central purpose of the bulk sales statutes is to afford a merchant's creditors an opportunity to satisfy their claims before the merchant can transfer his or her assets and vanish with the sale proceeds.” (Monastra v. Konica Business Machines, U.S.A., Inc. (1996) 43 Cal.App.4th 1628, 1642.)
“The bulk sales law applies when a business sells more than half of its inventory and equipment in a sale that is not in the ordinary course of the business. The law protects creditors by requiring that a specified advance notice of the sale be published and recorded, and that creditors be paid to the extent possible. Purchasers in a bulk sale often conduct the sale through an escrow. A buyer who fails to comply with the notice and creditor payment requirements of the bulk sales law is liable to a claimant for damages in the amount of the claim, reduced by any amount the claimant would not have realized if the buyer had complied. To address creditor claims, a bulk sale buyer or its escrow agent may file an interpleader action with the purchase funds.” (Schnyder v. State Bd. of Equalization (2002) 101 Cal.App.4th 538, 543.)
Plaintiff alleges that on or about February 26, 2020, SAI and/or SGEI acquired
by purchase, assignment, foreclosure, or otherwise” all or substantially all of the assets and/or business of SEE. (SAC ¶ 19.) Plaintiff alleges SAI and/or SGEI failed to notify creditors of SEE of Defendants’ acquisition and thereby failed to comply with the bulk sale notice requirements. (Cal. Comm. Code § 6101 et seq.) Consequently, “the bulk transfer is fraudulent and void against any creditor” of SEE, and Defendants’ SAI and SGEI are liable under Cal. Comm. Code § 6105. (SAC ¶ 21)
Defendant alleges that Plaintiff failed to plead sufficient specific facts to show that any alleged transfer from SEE to SAI and SGEI was fraudulent. Fraud is not an element of the bulk sale notice requirement. (See Monastra, supra, Cal.App.4th at 1636 [finding that compliance with the notice requirements of the Bulk Sales Act does not insulate the defendant from an attack under the Fraudulent Transfer Act.].)
Accordingly, the demurrer to the 3rd cause of action is OVERRULED.
Fourth, Fifth and Sixth COA’s: Violation of Voidable Transaction
Plaintiff’s 4th, 5th, and 6th causes of action pertain to violations under the Uniform Voidable Transactions Act. (See Civ. Code § 3439 et seq.)
“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 as follows:
(1) With actual intent to hinder, delay, or defraud any creditor of the debtor.
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either:
(A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.
(B) Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.”
(Civ. Code § 3439.04 subd. (a).)
Civ. Code section 3493.05 subd. (a) provides:
“A transfer made or obligation incurred by a debtor is voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.”
(Civ. Code § 3439.05 subd. (a).)
In the SAC, Plaintiff alleges that all Defendants “agreed and knowingly and willfully conspired between themselves to hinder, delay and defraud the creditors of SEE” by transferring assets from SEE to SAI and/or SGEI without tendering equivalent value for the assets acquired. (SAC ¶¶ 23, 24.) As a result, Plaintiff was damaged in the sum of no less than $30,481.00. (SAC ¶ 27)
On or about February 2020, Defendants did in fact cause SEE to transfer assets from SEE to SAI and/or SGEI without receiving equivalent value in exchange for the transfer(s). (SAC ¶ 33) Plaintiff is informed and believes that at the time of the transfer SEE was insolvent as a result of the transfer. (Id.) Plaintiff believes their assignor’s claim arose before the aforesaid transfer was made (SAC ¶ 34.) Plaintiff specifies that the asset(s) transferred is the “Subject Property” including “without limitation, inventory, receivables, equipment, cash and goodwill of SEE.” (SAC ¶¶ 30, 33.)
Defendants assert that because Plaintiff’s causes of action pertain to a fraudulent transfer and they must be plead with specificity. (See Lazar v. Superior Court (1993) 13 Cal.4th 631, 645.) However, the California Supreme Court in Lazar qualified the specificity requirement to situations “where plaintiff alleges a traditional fraud cause of action.” Here, Plaintiff alleges a fraudulent conveyance took place as defined under the Uniform Voidable Transactions Act.
Plaintiff has sufficiently alleged that Defendants SAI and SGEI failed to tender adequate consideration for their purchase or acquisition of SEE’s assets. (SAC ¶¶ 24, 30, 33.) Accordingly, for purposes of a demurrer, the allegation is taken as true. "Whether the plaintiff will be able to prove the pleaded facts is irrelevant to ruling upon the demurrer." (Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 609–610.) Therefore, Plaintiff must not prove that Defendants tendered inadequate consideration at this initial stage of the pleading.
“Less particularity is required when it appears that defendant has superior knowledge of the facts, so long as the pleading gives notice of the issues sufficient to enable preparation of a defense.”(Okun v. Superior Court (1981) 29 Cal.3d 442, 458.) “[A]ll that is required of the plaintiff, even as against a special demurrer, is to allege the essential facts with such particularity so as to inform the defendant of the relationship of the parties and the nature of the cause which would create his liability. This rule is particularly applicable with respect to facts peculiarly within the knowledge of the defendant.” (Miller v. Pacific Constructors, Inc. (1945) 68 Cal.App.2d 529). “Plaintiff may allege on information and belief any matters that are not within his personal knowledge, if he has information leading him to believe that the allegations are true.” (Pridonoff v. Balokovich (1951) 36 Cal.2d 788, 792.)
Accordingly, taking all of Plaintiff’s allegations as true for purposes of a demurrer, the Court finds that Plaintiff has stated sufficient facts to sustain the causes of action alleged under the Uniform Voidable Transactions Act.
The demurrer to the 4th, 5th, and 6th causes of action is OVERRULED.
Conclusion
Defendants’ demurrer to Plaintiff’s 2nd cause of action is SUSTAINED WITH 20 DAYS LEAVE TO AMEND.
Defendants’ demurrer to Plaintiff’s 3rd, 4th, 5th, and 6th causes of action is OVERRULED.
Moving party to give notice.