Ruling
BORIS BELJAK, ET AL. VS CHRISTOPHER CHO KLEIN, ET AL.
Jul 25, 2024 |
23SMCV04468
Case Number:
23SMCV04468
Hearing Date:
July 25, 2024
Dept:
205
Superior Court of California
County of Los Angeles
West District
Beverly Hills
Courthouse /
Department
20
5
A&M ENGINEERING, INC.
,
Plaintiff,
v.
CHRISTOPHER KLEIN,
et al.
,
Defendant
s
.
Case No.:
2
3
SMCV0
4468
Hearing Date:
June
28
,
2024
[
TENTATIVE] ORDER
RE:
PLAINTIFFS
APPLICATIONS
FOR
WRIT
OF
ATTACHMENT
BACKGROUND
This action arises from a
breach of promissory notes
.
Plaintiff A&M Engineering Inc.
made three short-term loans to two Defendants
,
Global Automotive Solutions LLC (GAS) and GASs successor
-
in
-
interest,
Stelaro
LLC (
Stelaro
)
.
The loans total $14 million, only $1 million of which
Plaintiff claims
has been repaid
.
The loans were
purportedly used
to buy cars in Mexico which were re-sold for a profit in other countries
.
Defendant Christopher Klein served as the CEO of GAS and
Stelaro
.
Defendant
Alondra Group, LLC is the sole shareholder of
Stelaro
.
Plaintiff has sued other corporate defendants
who it
claims
are the alter egos of
Klein
, including
Christopher Klein Enterprises
LLC (CKE),
Executive Auto Rentals, LLC
(EAR)
, and
Luxury Lift
,
LLC
(L
uxury
)
(together with Alond
r
a, the Alter Ego Defendants)
.
Plaintiff has also sued Instant Infosystems, Inc.
(Instant), an entity owned by Christopher Kleins father, which Plaintiff claims received a fraudulent transfer
.
Plaintiff filed the instant action alleging
ten causes of action for (1) breach of contract, (2) fraud-misrepresentation, (3) fraud-concealment, (4) negligent misrepresentation, (5) receiving stolen property Penal Code
§ 496(a), (c); (6) fraudulent transfer Civ. Code § 3439 et seq.; (7) breach of fiduciary duty, (8) unfair competition Bus. & Prof. Code § 17200; (9) constructive trust, and (10) unjust enrichment
.
Plaintiff
filed applications for right to attach orders
.
On February 20, 2024, the Court denied the applications
.
Plaintiff filed
a petition for
writ of mandate
.
On April 9, 2024, the Court of Appeal issued its order and alternative writ of mandate commanding the Court to either respond to an order to show cause or vacate your order of February 20,
2024
& and thereafter make a new and different order setting the petitions for a hearing to determine whether an attachment should issue based on the courts evaluation of the record and the probable outcome of the litigation.
On May 1, 2024,
the Court vacate
d
the February 20 order and set
this
hearing on the applications to consider the probable validity of Plaintiffs claims
.
LEGAL STANDARD
Upon the filing of the complaint or at any time thereafter, the plaintiff may apply pursuant to this article for a right to attach order and a writ of attachment by filing an application for the order and writ with the court in which the action is brought.¿ (C
ode
C
iv.
P
roc.
§ 484.010.)
¿¿
The application shall be executed under oath and must include: (1) a statement showing that the attachment is sought to secure the recovery on a claim upon which an attachment may be issued; (2) a statement of the amount to be secured by the attachment; (3) a statement that the attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based; (4) a statement that the applicant has no information or belief that the claim
is discharged or that the prosecution of the action is stayed in a proceeding under the Bankruptcy Act (11 U.S.C. section 101
et seq.
); and (5) a description of the property to be attached under the writ of attachment and a statement that the plaintiff is informed and believes that such property is subject to attachment.¿ (C
ode
C
iv.
P
roc.
§ 484.020.)¿
¿
The application [for a writ of attachment] shall be supported by an affidavit showing that the plaintiff on the facts presented would be entitled to a judgment on the claim upon which the attachment is based.¿ (C
ode
C
iv.
P
roc.
§ 484.030.)¿¿
¿
The Court shall issue a right to attach order if the Court finds
all of
the following:
¿
(1) The claim upon which the attachment is based is one upon which an attachment may be issued.
¿
(2) The plaintiff has
established
the probable validity of the claim upon which the attachment is based.
¿
(3) The attachment is not
sought
for a purpose other than the recovery
on
the claim upon which the attachment is based.
¿
(4) The amount to be secured by the attachment is greater than zero.
¿
CCP § 484.090.
¿
A claim has probable validity where it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim.¿ (C
ode
C
iv.
P
roc.
§ 481.190.)
In
determining
the probable validity of a claim where the defendant makes an appearance, the court must consider the relative merits of the positions of the respective parties and
make a determination
of the probable outcome of the litigation.¿ (See
Loeb & Loeb v. Beverly Glen Music, Inc.
(1985) 166 Cal.App.3d 1110, 1120.)
¿
This procedure is similar to a bench trial.
¿
(Hobbs v. Weiss (1999) 73 Cal.App.4
th
76, 81.)
At the times prescribed by C
ode Civ. Proc.
§
1005(b), the defendant must be served with summons and complaint, notice of application and hearing, and the application and supporting evidence.¿ (C
ode
C
iv.
P
roc.
§ 484.040.)¿¿
¿
Attachment is a drastic remedy in that it provides for
the collection of a debt by seizure in advance of trial and judgment, as security for the eventual satisfaction of the judgment
.
Thus, under California law
, attachment is a purely statutory remedy, subject to strict construction
.
(
Epstein v. Abrams
¿(1997) 57 Cal.App.4th 1159, 1168.)
REQUEST FOR JUDICIAL NOTICE
Instant seeks judicial notice of the first amended complaint filed in this action and the declaration of David Klein in support of Instants Opposition to A&Ms application for a right to attach order, writ of attachment and temporary protective order,
previously
filed in this action on November 29, 202
3
.
It is
unnecessary
to ask the court to take¿
judicial notice
of materials previously¿
filed
in this case
.
[A]
ll
that is necessary is to¿
call
the court
s¿
attention
to such papers.
(
Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial
(The Rutter Group 2016) ¶ 9:53.1a
)
.)
Accordingly
, the Court denies Instants request for judicial notice.
Plaintiff requests judicial notice
of
(1) the
Grant Deed from Dror Alperovich and Gila Leibovitch to Christopher Klein dated July 1, 2020 for the real property known as 1315 Schuyler Road, Los Angeles, CA 90210; (2) the Deed of
T
rust from borrower Christopher Klein to lender OCMBC, Inc., dated September 9, 2020 secured by the real property
located
at 1315 Schuyler Road, Los Angeles, CA 90210, (3) the Entity Information page pertaining to
Stelaro
, LLC on the Nevada Secretary of States website as of December 18, 2023, (4) the Entity Information page pertaining to Alondra Group, LLC on the Nevada Secretary of States website as of December 18, 2023; (5) the Statement of Information, Limited Liability Company filed by
Christopher Klein Enterprises LLC with the State of California Office of the Secretary of State on July 5, 2023; (6) the Statement of Information, Limited Liability Company filed by Christopher Klein Enterprises LLC with the State of California Office of the Secretary of State on August 31, 2021; (7) the Articles of Organization of a Limited Liability Company for Christopher Klein Enterprises LLC, filed with the Secretary of State for the State of California and dated June 26, 2015; (8) the Statement of Information, Limited Liability Company filed by Executive Auto Rentals LLC with the State of California Office of the Secretary of State on July 5, 2023; (9) the Statement of Information, Limited Liability Company filed by Executive Auto Rentals LLC with the State of California Office of the Secretary of State on July 16, 2021
; (10) the
Amendment to Articles of Organization of a Limited Liability Company for Executive Auto Rentals, LLC, filed with the Secretary of State for the State of California and dated January 14, 2021
; (11) the
Articles of Organization of a Limited Liability Company for
Andares
Car Rental, LLC, filed with the Secretary of State for the State of California and dated January 8, 2021
; (12) the
Summary for Luxury Lifts LLC found on the Colorado Secretary of States website on November 21, 2023
; (13) the
Statement of Change Changing the Registered Agent Information filed by Luxury Lifts LLC on July 6, 2023 with the Colorado Secretary of State
; (14) the
Articles of Organization for a Limited Liability Company filed by Luxury Lifts LLC on February 3, 2022 with the Colorado Secretary of State
; (15)
Defendants Consolidated Opposition to Ex
Parte
Applications for Right to Attach Orders etc., filed in this matter on October 6, 2023
; (16) the
Opposition of Defendants
Stelaro
, LLC and Alondra Group, LLC to Applications for Right to Attach Orders etc., filed in this matter on November 29, 2023
; (17)
Defendant
Stelaro
, LLCs Answer to Unverified Complaint filed in this matter on November 17, 2023
; (18)
Defendant Alondra Group, LLCs Answer to Unverified Complaint filed in this matter on November 17,
2023
;
(19)
Order and Alternative Writ of Mandate dated April 9, 2024 in A&M Engineering, Inc. v. Superior Court of Los Angeles County, Court of Appeal for the Second Appellate District case number B335766
l; (20)
Letter dated May 2, 2024 from Leah C. Gershon, Court Counsel, to the Justices of Division Seven of the Court of Appeal for the Second Appellate District pertaining to case number B335766
; (21)
Brief of Defendants
Stelaro
, LLC and Alondra Group, LLC Regarding the Courts Response to the Court of Appeals Order and Alternative Writ of Mandate dated April 24, 2024 and filed in this matter
; and (22)
Preliminary Opposition of Real Parties in Interest
Stelaro
, LLC and Alondra Group, LLC to Petition for Writ of Mandate or Other Appropriate Relief dated April 5, 2024 and filed in A&M Engineering, Inc. v. Superior Court of Los Angeles County, Court of Appeal for the Second Appellate District case number B335766.
The Court
takes
judicial notice of Exhibits 1 and 2 as recorded documents
pertaining to
ownership of property as official acts of the County of Los Angeles or as facts and propositions that are not
reasonably subject
to dispute and are capable of immediate and
accurate
determination by resort to sources of
reasonably indisputable
accuracy. (Evid. Code, § 452, subds. (c), (g), (h)
.)
The Court takes judicial notice of Exhibits 3 through 14 as enactments of the offices of the Secretaries of State of California, Nevada, and Colorado, or as official acts of those Secretaries of State. (Evid. Code, § 452, subds. (b) & (c).) The Court
denies the request for judicial
notice of Exhibits 15 through 22 as
unnecessary as they are documents filed in this case
.
EVIDENTIARY OBJECTIONS
The Court overrules
the Alter Ego Defendants
Objection
Nos. 1,
2, 3, 4,
5,
8, 9
and sustains Objection Nos.
6, 7,
10,
11, 12,
13,
14, 15
, 16,
17, 18,
19,
to the Declaration of Boris
Beljak
,
Jr.
The Court
sustains
the Alter Ego Defendants
Objection Nos.
20, 21
, 22 to the Declaration of Anthony Brown
.
The Court
sustains
the Alter Ego Defendants
Objection No.
23
to the Declaration of
Ryan
Thomas Dunn
.
The Court sustains
the Alter Ego Defendants
Objection Nos. 24 and 25 to the Declaration of Ivonne Franco
.
The Court sustains Instants Objection Nos. 1,
2, 3, 4, 5,
6 to the Declaration of Boris
Beljak
,
Jr.
ANALYSIS
Basis of Attachment
Section 483.010, subd
.
(
a
)
provides that except as otherwise provided by statute, a writ of attachment can be
issued
only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500) exclusive of costs, interest, and attorney's fees. (C
ode
C
iv.
P
roc.
§ 483.010(a).)
The purpose of the fixed and readily ascertainable requirement is [t]o ensure that the defendant has meaningful notice of what she is contending with, and to ensure that the attachment amount may be accurately determined in summary proceedings prior to trial. (
Royals v. Lu
(2022) 81 Cal.App.5
th
328, 350.)
It is a well-recognized rule of law in this state that an attachment will lie upon a cause of action for damages for a breach of contract where the damages are readily ascertainable by reference to the contract and the basis of the computation of damages appears to be reasonable and definite. The fact that the damages are unliquidated is not determinative
.
But the contract sued on must
furnish
a standard by which the amount due may be clearly
ascertained
and there must exist a basis upon which the damages can be
determined
by proof. (See
CIT Group/Equipment Financing, Inc. v. Super DVD, Inc.
(2004) 115 Cal.App.4
th
537, 541.)
Here, the amount owed is
readily
ascertainable
,
and there is a basis upon which
the damages can be determined
.
A&M
submitted
the three outstanding promissory notes, which totaled $14,000,000
.
(
Exs
.
B, C, D
to
Beljak
Decl.)
A&M also
submitted
A
&M
bank statements showing that
Stelaro
had repaid A&M $1,000,000
.
(Ex. E to
Beljak
Decl
.) The promissory
notes and bank records are properly authenticated in the declaration of Boris
Beljak
.
(
Beljak
Decl.
¶¶
12, 18,
21,
24-25
.
)
A&M now seeks the unpaid balance on the promissory notes of $13,000,000
.
A
ccordingly
,
the
notes
sued on
furnish
a standard by which the amount due can be calculated and the
amount
of damages can be
determined
by
resort to proof (
i.e.
,
the notes and
the bank statements
)
.
Probable Validity
Stelaro
Plaintiff has shown the probable validity of its claims against
Stelaro
.
There is no dispute that
Stelaro
borrowed $14 million from Plaintiff
.
The parties dispute the amount that has been repaid, but even under
Stelaros
version of events, it owes $
11,065,000
($14 million in loans less
the
$
2,935,000
Stelaro
claims it paid)
.
(C. Klein Decl.
¶
2
;
Ex
s
. 1
.)
Stelaro
argue
s
that
Plaintiff is barred from recovery due to the usurious nature of
its
loans
.
Stelaro
has offered no facts to support this defense
--
only the vague legal conclusion that there are usury issues A&M must rebut
.
(
Stealor
Resp. Br. At 4.)
But
even if a usury defense were available in this case, Plaintiff is entitled to repayment of the principal amount on the notes which is the only amount
it is
seeking
to attach
.
(
Gibbo
v. Berger
(2004) 123 Cal.App.4
th
396, 403
(
When a loan is usurious, the creditor is entitled to repayment of the principal sum only.).)
The Court has credited all the amounts allegedly paid by
Stelaro
to principal, as Plaintiff has not shown what
portion
(if any) should be credited to interest
.
Accordingly
, whether Plaintiff has charged usurious interest is simply not relevant to this application
.
Stelaro
also argues that
Boris
Beljaks
declaration is conclusory
,
and
the amount due is
inadequately documented
.
The Court disagrees
.
The declaration
contains
sufficient detail
regarding
the amounts due under the promissory notes
and is supported by the notes and bank
statements
.
(
Beljak
Decl.
¶¶
24-25.)
A declaration signed under penalty of perjury, as
Beljaks
is, is sufficient to show A&M, of which
Beljak
is owner and CEO, disbursed the loan funds.
However,
while the Court concludes Plaintiff has shown the probable validity of its claim
s against
Stelaro
, t
he evidence is in equipoise as to the amount owed
.
The parties have filed dueling declarations
that
are equally credible
.
A
ccordingly
,
because Plaintiff bears the burden of proof,
a
conclusion
that the evidence is
equal
ly balanced
means the Court
can
grant the application for only the amount that is undisputed:
$
11,065,000
.
Al
ter Ego Defendants
Plaintiff has not shown
the
probable validity of
its claim
s
against
the Alter Ego Defendants
.
Plaintiffs claims against
these defendants
are
based on an alter ego theory
.
A
lter ego liability
requires two elements
: (1) such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and (2) whether adherence to the fiction of separate existence would, under the circumstances, promote fraud or injustice. (
Watson v. Commonwealth Ins. Co.
¿(1936) 8 Cal.2d 61, 68
.)
¿
Factors a trial court may consider when deciding unity of interest and whether the fiction of a separate existence would promote fraud and injustice include the following: Commingling of funds and other assets & ; the treatment by an individual of the assets of the corporation as his own [citations]; & the failure to maintain & adequate corporate records & ; & sole ownership of all of the stock in a corporation by & the members
of a family [citations]; & the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual & ; & [the] concealment of personal business activities [citations]; the use of the corporate entity to procure labor, services or merchandise for another person or entity [citations];
& or the use of a corporation as a subterfuge of illegal transactions. (
Associated Vendors, Inc. v. Oakland Meat Co.
¿(1962) 210 Cal.App.2d 825, 838840
.)
Alter ego is an extreme remedy, sparingly used
.
(
Sonora Diamond Corp. v. Superior Court
(2000) 83 Cal. App. 4th 523, 539
;
see also
Mesler v. Bragg Management Co.
(1985) 39 Cal.3d 290, 301 (the corporate form will be disregarded only in narrowly defined circumstances and only when the ends of justice so require);
Las Palmas Associates v. Las Palmas Center Associates
(1991) 235 Cal.App.3d 1220, 1249 (sound public policy dictates that imposition of alter ego liability be approached with caution).)
Plaintiff
argues
it has met eight
Associated Vendors
factors
.
In doing so, Plaintiff relies heavily on
the declaration of Boris
Beljak
, Jr., but
Beljak
lacks personal knowledge to attest to
most (if not all) of these factors
.
Plaintiff also
fails to
systematically show it has met the eight
Associated Vendors
factors as to
each
Alter Ego Defendant
.
For example,
it argues
it has met the common ownership factor,
but it has only shown common ownership
of
Stelaro
and Alondra
.
It claims there is a commingling of assets; but it has only shown commingling of assets between
Stelaro
and CKE
.
It argues
there is a sharing of offices,
but it has only shown one defendant (Alondra) who has the same office as
Stelaro
.
In any event, e
ven if Plaintiff
has
alleged sufficient facts to show unity of interest, the Court concludes
it has not
alleged facts to show an inequitable result would occur if the Court
failed to
pierce
Stelaros
corporate veil
.
Without
citing
any evidence, Plaintiff
conclusorily
argues
that Klein will
simply drain
Stelaro
of available funds (if he hasnt already) by transferring
Stelaros
funds to the alter ego entities, leaving
Stelaro
without assets to satisfy a judgment against it.
But t
here is no
evidence
that
Stelaro
is
undercapitalized, is
insolvent or cannot pay a judgment issued against it
.
Accordingly
, Plaintiff has not shown the probable validity of its claim against
the Alter Ego Defendants,
and the Court denies its application as to
the Alter Ego Defendants
.
Instant
Plaintiff has shown
it is more likely than not that it will prevail on its
sole claim for fraudulent transfer
against Instant
.
A fraudulent transfer under the
UVTA
is a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor
from reaching that interest to satisfy its claim. [Citation.] (
Kirkeby v. Superior Court
(2004) 33 Cal.4th 642, 648.) Under the
U[V]TA
, a transfer can be invalid either because of actual fraud (
Civ. Code, § 3439.04, subd. (a)
) or constructive fraud (
id.
,
§§ 3439.04, subd. (b)
,
3439.05
)
& .
(
Mejia
v. Reed
(2003)
31 Cal.4
th
657,
661
.)
Actual fraud under the
UVTA
is shown when a transfer is made, or an obligation is incurred, [w]
ith
actual intent to hinder, delay, or defraud any creditor of the debtor. (
Civ. Code
§ 3439.04, subd. (a)(1)
.)
Such a transfer is voidable as to a creditor of the debtor, whether the creditor
s claim arose before or after the transfer was made or the obligation was incurred. (
Civ. Code
§ 3439.04, subd. (a)
.)
It is not voidable, however, against a person that took in good faith and for a reasonably equivalent value given the debtor or against any subsequent transferee or
obligee
. (
Civ. Code
§ 3439.08, subd. (a)
.
)
To
determine
whether there is an actual intent to defraud, the Court looks to eleven badges of fraud. (
Nagel v. Westen
(2021) 59 Cal.App.5th 740, 748.)
The factors are:
(1) Whether
the transfer or obligation was to an insider. [¶] (2) Whether the debtor
retained
possession or control of the property transferred after the transfer. [¶] (3) Whether the transfer or obligation was
disclosed
or concealed. [¶] (4) Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit. [¶] (5) Whether the
transfer was of
substantially all
the debtor
s assets. [¶] (6) Whether the debtor absconded. [¶] (7) Whether the debtor removed or concealed assets. [¶] (8) Whether the value of the consideration received by the debtor was
reasonably equivalent
to the value of the asset transferred or the amount of the obligation incurred. [¶] (9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred. [¶] (10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred. [¶] [and] [¶] (11) Whether the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.
(
Civ. Code
§ 3439.04, subd. (b)
.)
None of these factors is determinative, and no minimum or maximum number of factors is required.
(
Aghaian
v. Minassian, supra
, 59 Cal.App.5th at p. 456; see also
Filip
v.
Bucurenciu
(2005)
129 Cal.App.4th
825,
834
.)
In
Filip
, the court explained the factors do not create a mathematical formula to
establish
actual intent. There is no minimum number of factors that must be present before the scales tip in favor of finding of actual intent to defraud
.
This list of factors is meant to provide guidance to the trial court, not compel a finding one way or the other.
(
Id.
at p. 834
.)
The presence of one or more badges of fraud does not create a presumption of fraud
.
Rather, it is merely evidence from which an inference of fraudulent intent may be drawn.
(
Legis. Com. com., Deering's Ann. Civil Code, § 3439.04
.)
Constructive fraud under the UVTA can be shown in either of two ways
.
First, a transfer is constructively fraudulent where a debtor makes a transfer or incurs an obligation [w]
ithout
receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either: [¶] (A) [w]as 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[; or] [¶] (B) [
i
]
ntended
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)(2)
.)
As with actual fraud, this form of transfer is
voidable as
to a creditor no matter whether the creditor
s claim arose before or after the transfer. (
Civ. Code
§ 3439.04, subd. (a)
.)
Second, a transfer is constructively fraudulent when a debtor makes a transfer or incurs an 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. (
§ 3439.05, subd. (a)
.) This form of transfer is voidable as to a creditor whose claim arose before the transfer was made. (
Id.
)
Here,
Stelaro
made two transfers to Instant
: (1)
in
March 2022 for $600,000 to repay
Instants loan to CKE
, and
(2)
monthly payments
totaling over $50,000 for rent
allegedly
owed by
Stelaro
to CKE
.
(D. Klein Decl.
¶
¶
3
, 8
.)
As to the first transfer,
Plaintiff argues there is actual fraud because the
transfer was made
from son to father, and
Stelaro
received no
reasonably equivalent
value because
it was paying Instant
$600,000
to satisfy a loan made by
a completely separate
entity, CKE
.
(D. Klein Decl.
¶ 3.)
There are also no contemporaneous documents showing that the loan was ever made
such as a note or loan agreement
.
Instant relies on a balance sheet as of 8/31/2020
to prove the loan was made
but it is unclear when the balance sheet was created
.
(Ex. A
to
D. Klein
Decl
.)
In opposition, Instant argues there was no intent to
hinder, delay or
defraud because
at the time these
this transfer was made in March 2022
, and through October 23, 2022, Plaintiff admits it was still receiving payments for the interest owed on its loans from
Stelaro
.
There is no evidence
Stelaro
was insolvent at the time of the transfers, or that it is in fact insolvent today
.
The Court concludes
that
this transfer bears
four
badges of fraud
.
First
, the transfer was made
to an insider
; Instant and
Stelaro
are wholly owned by members of the same family
.
(
Menick v. Goldy
(1955) 131 CAl.App.2d 542, 547 (The relationship of parent and child, when coupled with other suspicious circumstances, may be sufficient to raise an inference of fraud in the conveyance.).)
Second
,
the
value of the consideration received by
Stelaro
was not
reasonably equivalent
to the value of the asset transferred
.
There
is no dispute that
the transfer here was made to repay the loan of a separate entity, CKE, and therefore,
Stelaro
received no consideration from the transfer
.
Third
,
the transfer occurred shortly after
Stelaro
incurred a substantial debt
.
Stelaro
transferred $600,000 to Instant in March 2022, just seven days after A
&
M loaned
Stelaro
$5,000,000
.
Fourth
, while not a badge of fraud
identified
in
Civ. Code
§ 3439.04, subd. (b)
, the Court finds compelling the fact that there are no contemporaneous documents supporting the existence of the loan
from Instant
.
While Instant is correct that most of the badges of fraud are not present here,
[t]
here is no minimum number of factors that must be present before the scales tip in favor of finding of actual intent to defraud
.
This list of factors is meant to provide guidance to the trial court, not compel a finding one way or the other.
(
Filip
,
129
Cal.App.4th
at
834
.)
As to the second transfer
for rental payments, there
are
also no contemporaneous documents supporting
the existence of any liability or debt owed by
Stelaro
to Instant
.
For example, there is
no rental agreement
.
The absence of this documentation coupled with the relationship between the owners of
Stelaro
and Instant supports a finding of an actual intent to hinder, delay or defraud creditors
.
Accordingly
, the Court also concludes Plaintiff has shown it is more probable than not that it will prevail on its fraudulent transfer claim again
st Instant for the transfers
for alleged rent payments
.
Purpose and Amount of Attachment
Code of Civil Procedure section 484.090 states that the Court shall issue a right to attach order if the attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based . . . [and] the amount to be secured by the attachment is greater than zero. Plaintiff declares that attachment is not
sought
for a purpose other than the recovery
on
Plaintiffs claim
.
(Appl. ¶ 4.) The amount to be secured is greater than zero.
Subject Property
Code of Civil Procedure section 487.010(a) provides that [w]here the defendant is a corporation, all corporate property for which a method of levy is provided is subject to attachment
.
S
ection 487.010(a) also applies to LLCs
.
Defendants cite no authority to the contrary
.
Exemptions
Defendants have not claimed any specific exemptions
.
Also, generally, corporate defendants may not claim exemptions.
Reduction of Amount to be Secured
Code of Civil Procedure section 483.015(b) provides that the amount to be secured by the attachment shall be reduced by,
inter alia
:
(2) The amount of any indebtedness of the plaintiff that the defendant has claimed in a cross-complaint filed in the action if the defendants claim is one upon which an attachment could be issued.
(3) The amount of any claim of the defendant asserted as a defense in the answer
pursuant to
Section 431.70 if the defendant's claim is one upon which an attachment could be issued had an action been brought on the claim when it was not barred by the statute of limitations.
[T]o sustain reduction in a writ amount, most courts require that the defendant provide enough evidence about its counterclaims and/or defenses to prove a prima facie case [for
attachment against Plaintiff]. (Ahart,
California Practice Guide: Enforcing Judgments and Debts
, ¶ 4:64 (1998 rev.).)
Defendants have not supported an attachable defense or claim for offset
.
Undertaking
Instant argues that Plaintiff should
be required
to post an undertaking of $150,000 which
represents
the amount of fees Instant will incur to litigate this action to prove the attachment was wrongful
.
The Court disagrees
.
Code of Civil Procedure section 489.210 requires the plaintiff to file an undertaking before issuance of a writ of attachment
.
Code of Civil Procedure section 489.220 provides, with exceptions, for an undertaking
in the amount of
$10,000
.
However, that amount is subject to augmentation [
i
]f, upon objection to the undertaking, the court determines that the probable recovery for wrongful attachment exceeds the amount of the undertaking, in which case the court must order the amount of the undertaking increased to the amount it determines to be the probabl
e recovery for wrongful attachment if it is ultimately determined that the attachment was wrongful. (Code Civ. Proc.
§
489.220(b).)
An attachment is wrongful if a plaintiff does not
ultimately recover
judgment in the underlying action
.
(Code Civ Proc.
§490.010(b).) A plaintiffs liability for a wrongful attachment includes (1) all damages proximately caused to the defendant by the wrongful attachment, and (2) all costs and expenses, including attorneys fees,
reason
ably expended
in defeating the attachment
.
(Code Civ. Proc. §490.020(a).
)
There is ambiguity and uncertainty as to what the Legislature intends a trial court to consider in
determining
a
probable recovery for wrongful attachment under § 489.220(b)
.
(
N. Hollywood Marble Co. v. Superior Court
(1984)
157 Cal. App. 3d 683, 688
.
)
In
N. Hollywood
Marble Co.
, the California Court of Appeal held that the term
probable
recovery
in
§
489.220(b)
should be construed as giving the trial court discretion to consider the probability of a plaintiff prevailing in the underlying action in determining a defendant
s
probable recover
y
for wrongful attachment
under
§
489.220(b)
and, accordingly, denied the defendant
s motion to increase the plaintiff's undertaking because the defendant effectively conceded the merits of the plaintiff's claim.
(
Id.
at 688
.
)
There,
the plaintiff sued the defendant for breach of contract, obtained a right-to-attach order to seize inventory, equipment, and supplies of defendant
s business equal to the amount of plaintiff
s breach of contract claim, and posted the statutory undertaking.
(
Id.
at 686
.
)
The defendant moved to increase the plaintiff
s undertaking
pursuant to
§
489.220(b)
.
(
Id.
)
The trial court denied the defendant
s motion, finding that
section 489.220[b]
contemplates the trial court
s consideration of the probable validity of the plaintiff
s claim
in the process of determining
the
probable recovery
of defendant for
wrongful attachment.
(
Id.
at 688
.
)
On appeal, the defendant argued that the trial
court was precluded from considering the
probable validity of the plaintiff's claim
in
determining
its
probable recovery for wrongful attachment
under
section 489.220(b)
.
(
Id.
at 689, 691
.
)
Like
Instant
here, the defendant in
N. Hollywood Marble Co.
advanced a reading of
§
489.220(b)
that was confined to a determination of a monetary amount
, i.e.,
a determination of the
likely
amount
of the recovery for wrongful attachment, and whether it exceeds the
amount
of the posted undertaking
.
(
Id.
at 689
.
)
As explained by the California Court of Appeal, under the defendant
s posited reading of
§
489.220
, a court should simply assume the attachment is wrongful and increase the undertaking to the
total damages [or amount the] defendant competently demonstrates it is likely to sustain from
the attachment.
(
157 Cal. App. 3d at 689
.
)
This reading, in effect, equates
probable recovery
with
probable loss.
(
Id.
)
The
N. Hollywood Marble Co.
court rejected the defendant
s construction of
§
489.220(b)
as contrary to the purpose of the attachment remedy.
(
Id.
at 689-91
.
)
As
stated
by the court, the purpose of the attachment procedure is to protect an unsecured creditor plaintiff from the dissipation of the defendant
s assets before the plaintiff can obtain and enforce a judgment against the defendant, by allowing the plaintiff to attach certain assets in satisfaction of the plaintiff
s claim.
(
Id.
at 690
.
)
This purpose would be frustrated by the defendant
s proffered
construction of
§
489.220, because a plaintiff would then
be required
to unnecessarily finance a
massive undertaking on a claim of certain merit.
(
Id.
at 690
.
)
Under the specific facts of
Hollywood Marble Co.
, the court concluded that enforcing a literal interpretation of
section 489.220
would lead to an absurd result in the case before it, because the defendant had
essentially conceded
the merits of plaintiff
s underlying claim.
(
Id.
at 691
.
)
Instead, the court adopted a more expansive construction of the term
probable recovery.
It construed the term as giving
the trial court discretion to consider . . . the probability that plaintiff will prevail on his claim in the action
in
determining
a defendant
s probable recovery for wrongful attachment
.
(
Id.
at 689, 691-92
.
)
The court concluded that the
ambiguous language of
section 489.220, subdivision (b)
, does not reflect a clear legislative intent to divest trial courts of [their inherent discretion] and to preclude the consideration of facts that are critical to the purpose of attachment.
(
Id.
at 692
.
)
Applying the principles in
N. Hollywood Marble Co.
,
this court finds no evidence in the record to suggest that
Instant
is more likely to prevail than
Plaintiff
.
As such, the court finds that the amount of Plaintiff's undertaking should
not
be increased.
CONCLUSION
For the foregoing reasons, the Court
GRANTS
Plaintiffs
applications for writ of attachment against
Stelaro
in the amount of
$11,065,000;
GRANTS
as to
Instant and
DENIES
as to Alondra
,
Klein,
CKE,
EAR
and Luxury
.
Plaintiff
is required to
make an undertaking of $10,000.
IT IS SO ORDERED.
DATED:
June
28
, 2024
___________________________
Edward B. Moreton, Jr.
Judge of the Superior Court
Superior Court of California
County of Los Angeles
West District
Beverly Hills
Courthouse /
Department
20
5
A&M ENGINEERING, INC.
,
Plaintiff,
v.
CHRISTOPHER KLEIN,
et al.
,
Defendant
s
.
Case No.:
2
3
SMCV0
4468
Hearing Date:
Ju
ly
1
8
, 2024
[
TENTATIVE] ORDER
RE:
DEFENDANTS
CHRISTOPHER KLEIN,
GLOBAL AUTOMOTIVE SOLUTIONS,
LLC, STELARO, LLC, ALONDRA GROUP,
LLC, CHRISTOPHER KLEIN
ENTERPRISES, LLC, LUXURY LIFTS,
LLC
AND EXECUTIVE AUTO RENTALS,
LLCS
DEMURRER TO COMPLAINT
BACKGROUND
This action arises from a
breach of promissory notes
.
Plaintiff A&M Engineering Inc.
made three short-term loans to two Defendants
,
Global Automotive Solutions LLC (GAS) and GASs successor
-
in
-
interest,
Stelaro
LLC (
Stelaro
)
.
The loans total $14 million, only $1 million of which
Plaintiff claims
has been repaid
.
The loans were
purportedly used
to buy cars in Mexico which were re-sold for a profit in other countries
.
Defendant Christopher Klein served as the CEO of GAS and
Stelaro
.
Defendant
Alondra Group, LLC is the sole shareholder of
Stelaro
.
Plaintiff has sued other corporate defendants
who it
claims
are the alter egos of
Klein
, including
Klein Enterprises
LLC (CKE),
Executive Auto
Rentals, LLC
(EAR)
, and
Luxury Lift
,
LLC
(L
uxury
)
.
Plaintiff has also sued Instant Infosystems, Inc. (Instant), a company owned by Christopher Kleins father (David Klein), which Plaintiff claims received fraudulent transfers from
Stelaro
.
Plaintiff filed the instant action alleging
ten causes of action for (1) breach of contract, (2) fraud-misrepresentation, (3) fraud-concealment, (4) negligent misrepresentation, (5) receiving stolen property Penal Code
§ 496(a), (c); (6) fraudulent transfer Civ. Code § 3439 et seq.; (7) breach of fiduciary duty, (8) unfair competition Bus. & Prof. Code § 17200; (9) constructive trust, and (10) unjust enrichment
.
This hearing is on
Defendants Klein, GAS,
Stelaro
, Alondra, CKE, Luxury and EARs
(Moving Defendants)
demurrer
.
Moving
Defendants argue that (1) the second, third and fourth causes of action fail because Plaintiff has not plead fraud with specificity
;
(2) the fourth cause of action fails because Plaintiff has not alleged theft or receipt of stolen property with the requisite criminal intent, and (3) the ninth and tenth causes of action fail because they are not causes of action.
N
o opposition
has been
filed
.
MEET AND CONFER
¿
Code Civ. Proc. §430.41 requires that [b]
efore
filing a demurrer pursuant to this chapter, the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer. (C
ode
C
iv.
P
roc.
§ 430.41(a).)¿ The parties are to meet and confer at least five days before the date the responsive pleading is due. (C
ode
C
iv.
P
roc.
§ 430.41(a)(2).)¿ Thereafter, the demurring party shall file and serve a declaration detailing their
meet
and confer efforts. (C
ode
C
iv.
P
roc.
§ 430.41(a)(3).)¿
Moving Defendants
submit
the declaration of
Johnny White
attesting that counsel
met and conferred by phone on May 13, 2024, the same date
Moving Defendants
filed their
demurrer
.
This does not satisfy the meet and confer requirements
.
However, the Court cannot overrule a demurrer based on an insufficient meet and confer
.
(Code Civ. Proc. § 430.41(a)(4).)¿
LEGAL STANDARD
A demurrer to a complaint may be general or special
.
A general demurrer challenges the legal sufficiency of the complaint on the
ground
it
fails to
state
facts sufficient to constitute a cause of action. (
Code Civ. Proc., § 430.10, subd. (e);
Lewis v. Safeway, Inc.
(2015) 235 Cal.App.4th 385, 388.) 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
.
(See
Donabedian v. Mercury Ins. Co.
(2004) 116 Cal.App.4th 968, 994 (in ruling on a demurrer, a court may not consider declarations, matters not subject to judicial notice, or documents not accepted for the truth of their contents).) For purposes of ruling on a demurrer, all facts pleaded in a complaint are assumed to be true, but the reviewing court does not assume the truth of conclusions of law. (
Aubry v. Tri-City Hosp. Dist.
(1992) 2 Cal.4th 962, 967.)
A special demurrer challenges other defects in the complaint, including whether a pleading is uncertain. (
Code Civ. Proc., § 430.10, subd. (f)
.) The term uncertain
means
the pleading is ambiguous and unintelligible.
(
Id.
) A demurrer for uncertainty should be sustained if the complaint is drafted in such a manner that the defendant cannot
reasonably respond
,
i.e.
, the defendant cannot
determine
what issues must be admitted or denied, or what counts are directed against the defendant. (
Khoury v. Maly's of California, Inc.
(1993) 14 Cal.App.4th 612, 616
.)
Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (
See Goodman v. Kennedy
(1976) 18 Cal.3d 335, 349 (court shall not sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment);
Kong v. City of Hawaiian Gardens Redevelopment Agency
(2002) 108 Cal.App.4th 1028, 1037 (A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a
reasonable possibility the defect can be cured by amendment.).) The burden is on the complainant to show the Court that a pleading can be amended successfully. (
Blank v. Kirwan
(1985) 39 Cal.3d 311, 318.)
ANALYSIS
Fraud
and Negligent Misrepresentation
Claims
Defendants argue that Plaintiff has not
plead
fraud
or negligent misrepresentation
with sufficient particularity
.
The Court disagrees.
The ele
ments of fraud are (a) a misrepresentation (false representation, concealment or nondisclosure), (b) scienter or knowledge of its falsity, (c) intent to induce reliance, (d) justifiable reliance, and (e) resulting damage.
(
Hinesley v.
Oakshade
Town Ctr.
(2005) 135 Cal.App.4
th
289, 294.)
The facts
constituting
the fraud must be alleged factually and specifically as to every element of fraud, as the policy of liberal construction of the pleadings will not ordinarily be invoked
.
(
Lazar v. Superior Court
(1996) 12 C
a
l.4
th
631, 645.)
The particularity requirement demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered. (
Id.
)
The elements of a cause of action for negligent misrepresentation include [m]
isrepresentation
of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce anothers reliance on the fact misrepresented, ignorance of the truth, and justifiable reliance on the misrepresentation by the party to whom it was directed and resulting damage. (
Hydro-Mill Co. Inc.
v
. Hayward
, Tilton & Rolapp Ins. Associates, Inc.
(2004) 115 Cal.App.4
th
1145, 1154.)
Negligent misrepresentation, like fraud, must be pled with specificity
.
(
Small v. Fritz Companies, Inc.
(2003) 30 Cal.4th 167, 184
.)
Here, the Complaint alleges that Defendants misrepresentations fall into two categories
:
(1) misrepresentations about GASs and
Stelaros
financial status and outl
ook and (2) misrepresentations about how Defendants would use the loan money received from Plaintiff
.
(First Amended Complaint (FAC)
¶121.)
As to the first category, Plaintiff alleges Klein provided him with false financial statements in the beginning of 20
20, 2021 and 2022
.
(FAC ¶
¶
123
, 124, 125.)
The financial statement
s
falsely
inflated
the assets, revenues, and
equity of
Stelaro
.
(
Id.
) Plaintiff also alleges
seven
specific statements
in
other documents, primarily
powerpoint
and Zoom
presentations that purpo
r
tedly touted the financial health of
Stelaro
, including that it was
awarded exclusive rights
by
Mercedes Benz Direct Fleet Sales for Export of all Mercedes Models to Middle East
, Africa, and Asia,
that it was a profitable $60 million business with a path to double the
companys revenue to $125 million over the next 18 months
,
that it sold vehicles to 125 different customers in 12 countries,
that it
maintained a procurement network of over 100 different dealerships in and across Mexico, and
that in 2019, GAS sold 602 cars, resulting in $33,107,000 total sales and a net profit of $2,689,000.
(
Id.
¶127.)
As to the second category, Plaintiff alleges
Klein misrepresented how he would use the proceeds of loans received from
Plaintiff
.
Smith repeatedly told
Beljak
that GAS and STELARO would use the money
[Plaintiff]
loaned and invested to buy cars for resale to customers in China and other foreign countries which was the essence of GAS/STELARO business.
(
Id.
¶130.) Plaintiff
identifies
four specific misrepresentations made by Klein that Defendants intended to use
Plaintiffs loans
t
o buy cars for resale
.
(
Id.
¶¶132-135.)
For example, Klein sent
B
e
ljak
on January 17,
2020
a
powerpoint
presentation
which
represented
that GASs $10
Million
Deb Offering was To Fund Monthly Mercedes B
e
nz Direct Distribution of 300-500 Vehicles per
month. (
Id.
¶132.)
These allegations are sufficient to meet the
particularity
requirement for pleading fraud and negligent misrepresentation
.
Moving
Defendants
argue
that the
bulk of the
alleged mis
statements were
not made by Klein but were instead made by
Scott
Smith
(a confessed embezzler and a CFO of both Plaintiff and
Stelaro
)
.
This argument may
ultimately prevail
, but it is not
appropriate on
a demurrer where the Court must accept Plaintiffs allegations as true
.
In
any event,
the Complaint alleges that Smith is an agent of the other Defendants (FAC ¶20), and on this basis, his misrepresentations may be attributed to
Moving Defendants
.
Moving
Defendants
also take issue with
particular misrepresentations
, arguing they are opinions and not statements of fact
.
Even if that were so, false financial statements can clearly be the basis of a fraud claim
.
And to the extent
other
misstatements
identified
by Plaintiff are mere
puffery or sales talk
,
this still does not support a demurrer as a demurrer cannot be made to only part of a claim
.
(
Venice Town Council, Inc. v. City of Los Angeles
(1996) 47 Cal.App.4th 1547, 1562;
PH II, Inc. v. Superior Court
(1995) 33 Cal.App.4th 1680, 1681;
Grieves v. Superior Court
(1984) 157 Cal. App. 3d 159, 163-164.)
Moving Defendants further argue that the second category of misrepresentations (relating to how Plaintiffs loans would be used) is controverted by the promissory notes which do not
state
how the loans would be used
.
While this argument may
ultimately prevail
, it is a challenge to the merits of Plaintiffs allegations which the Court cannot consider on a demurrer
.
The Court may not consider any other extrinsic evidence or judge the credibility of the allegations plead or the difficulty a plaintiff may have in proving his allegations
.
(
Ion Equip. Corp. v. Nelson
(1980) 110 Cal.App.3d 868, 881
.)
Moving Defendants also argue that
Plaintiff has made fundamentally inconsistent allegations
regarding
Klein
.
The Complaint alleges that Klein revealed Mr. Smiths embezzlement to Plaintiff
.
(FAC
¶¶
74-75.)
If Klein was
operating
a Ponzi s
cheme
, taking investor money to pay himself and family members, then, according to Defendants, it makes no sense that he would reveal
Smiths embezzlement
and
transmit
records of it to Plaintiff
.
Again, while this argument
has some appeal
, the Court cannot weigh the evidence on a demurrer
.
(
Ion Equip. Corp.
,
110 Cal.App.3d at 881.)
In sum,
the Court concludes that Plaintiff has sufficiently
stated
a claim for fraud
and
negligent misrepresentation
, and the Court overrules the demurrer to the second and fourth causes of action
.
Fraudulent Concealment
The elements of fraudulent concealment are (1) concealment or suppression of a material fact; by a defendant with a duty to disclose the fact to the plaintiff; (3) intent to defraud the plaintiff by intentionally
concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) the plaintiff sustained damage as a result of the concealment or suppression of fact. (
Hambridge v. Healthcare Partners Medical Group, Inc.
(2015) 238 Cal.App.4th 124, 162
.)
For a cause of action for fraudulent concealment to be actionable, there generally must exist a fiduciary relationship between the parties
.
(
Fink v. Weisman
(1933), 132
Cal.App
. 724, 730
.)
In addition, courts have found other circumstances in which nondisclosure or concealment may
constitute
actionable fraud: (1) possession of exclusive knowledge of material facts not known to the plaintiff; (2) active concealment of a material fact from the plaintiff; or (3) when partial representations are made but a material fact is withheld
.
(
LiMandri v. Judkins
(1997) 52 Cal.App.4th 326, 336
.)
Concealment is a species of fraud, and
[f]
raud
must be pleaded with
specificity.
(
Blickman
Turkus, LP v. MF Downtown Sunnyvale, LLC
(2008) 162 Cal.App.4th 858, 878
(bold emphasis added).)
However,
the standard particularity requirement is relaxed
as to fraudulent concealment claim
s
.
(
See
Alfaro v. Community Housing Improvement System & Planning Assn., Inc.
(2009) 171 Cal.App.4th 1356, 1384
(
less particularity is required when the facts lie more in the knowledge of the opposing party
);
see also
Committee on Children
s Television, Inc. v.
General Foods Corp.
(1983) 35 Cal.3d 197, 216
-
217
(less particularity
required
where it appears from the nature of allegations that defendant necessarily
possesses
full information concerning facts
in
controversy).
)
Here, Plaintiff alleges Defendants failed to disclose (1) they were using Plaintiffs loans for expenses other than vehicle purchases and they were instead using the loan proceeds to pay for personal expenses (FAC
¶150), (2)
Stelaro
had not filed tax returns for 2019, 2020 or 2021 (FAC ¶151)
, (3)
Stelaro
was losing money on sales in Europe (FAC ¶152), (4)
Stelaro
was consistently falling short of its sales goals (FAC ¶153
),
and
(5)
Stelaro
had negative cash flow; it lost money each year between 2019 and 2022 (FAC ¶154.)
Plaintiff further alleges Defendants had a duty to
disclose
these facts because they made partial representations
regarding
the financial health of
Stelaro
, while omitting these material facts
.
(FAC ¶156.) The Court concludes these allegations are sufficient to meet the more relaxed particularity requirement for a concealment claim
.
Accordingly
, the Court overrules the demurrer to the third cause of action
.
Receipt of Stolen Property
Moving Defendants argue that Plaintiff has not properly
stated
a claim for receipt of stolen property under Penal Code § 496
.
The Court agrees.
Section 496(a)
provides, in relevant part, that:
Every person who buys or receives any property that has been stolen or that has been
obtained in any manner constituting theft ..., knowing the property to be so stolen or
obtained ... shall
be punished by imprisonment in a county jail for not more than one
year, or imprisonment
pursuant to
subdivision (h) of Section 1170
.
Section 496(c)
states that
[a]
ny
person who has been injured by a violation of
subdivision (a)
... may bring an action for three times the
amount
of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney
s fees.
Cal. Penal Code § 496(c)
.
California courts have held that
[s]
ection
496(a)
extends to property
that has been obtained in any manner constituting theft.
(
Bell v.
Feibush
(2013)
212 Cal.App.4th 1041)
.
Penal Code
§
484 defines theft and states that
[e]very person ... 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, ... is guilty of theft.
(
Cal. Penal Code § 484(a)
.
)
Additionally,
[t]he elements required to show a violation of
section 496(a)
are simply that (
i
) property was stolen or obtained in a manner constituting theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the defendant received or had possession of the stolen property.
(
Switzer v. Wood
(2019)
35 Cal.App.5th 116)
.
The California Supreme Court has emphasized that not all commercial or consumer disputes alleging that a defendant obtained money or property through fraud, misrepresentation, or breach of a contractual promise will amount to a theft. (
Siry Inv., L.P. v.
Farkhondehpour
(2022) 13 Cal. 5th 333, 361.)
Here, Plaintiff alleges that it
is owed
$13,000,000 in loans, and Defendants have engaged in fraudulent transfers
.
These allegations do not amount to theft
.
Plaintiff voluntarily made loans to
Stelaro
LLC for which it allegedly received some but not all repayments
.
Defendants did not steal Plaintiffs money
.
Accordingly
, the Court sustains the demurrer to the fifth cause of action
.
Constructive Trust
Moving Defendants argue that there is no cause of action for constructive trust
.
The Court agrees.
In California, constructive trust is a remedy, not a cause of action. (
PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
(2007) 150 Cal. App. 4th 384, 398 (A constructive trust, however, is an equitable remedy, not a substantive claim for relief.).) Because California does not recognize constructive trust as a cause of action, plaintiff does not, and can never, state facts sufficient to constitute a cause of action for constructive trust
.
Pleading constructive trust as a cause of action instead of a remedy subjects the claim to demurrer. (
Stanfield v. Starkey
(1990) 220 Cal. App. 3d 59, 76.)
Moreover, even if constructive trust was a cause of action,
P
laintiff cannot satisfy the conditions for the imposition of a constructive trust
.
[A] constructive trust may only be imposed where the following three conditions are satisfied: (1) the existence of a res (property or some interest in property); (2) the right of a complaining party to that res; and (3) some wrongful acquisition or detention of the res by another party who is not entitled to it.
(
Communist Party v. 522 Valencia, Inc.
(1995) 35 Cal. App. 4th 980, 990.
)
Here, there is no
res
as to which
P
laintiff has any colorable claim of right that can be subject to a constructive trust
.
Plaintiff merely has a generalized claim for money allegedly owed
.
(
Kraus v. Willow Park Public Golf Course
(1977) 73 Cal. App. 3d 354, 373 ([A] constructive trust is an equitable remedy imposed where the defendant holds title or some interest in certain property which it is inequitable for him to enjoy as against the plaintiff.);
Michaelian v. State Comp. Ins. Fund
(1996) 50 Cal. App. 4th 1093, 1114 (specific identifiable property to which defendant has title is a pleading requirement).)
A constructive trust is not
an appropriate remedy
for a claim that is essentially one for money damages.
(
Evans v. Scribe One Ltd. LLC
(
D. Ariz.
Jan. 21, 2022)
2022 U.S. Dist. LEXIS 11600 *28.)
In sum,
California law holds that constructive trust is a remedy, and not a standalone cause of action,
and Plaintiff has not
identified
a specific identifiable property that could be subject to a constructive trust
.
Accordingly
, the Court sustains the demurrer to the
ninth cause of action
.
Unjust Enrichment
Moving Defendants argue there is no cause of action for unjust enrichment
.
The Court agrees
.
[T]here is no cause of action in California for unjust enrichment. (
Melchior v. New Line Prods. Inc.
(2003) 106 Cal. App. 4th 779, 79
3
.)
It is a general principle rather than a
remedy in its own right
.
(
Id.
)
It describes the theory underlying a claim that a defendant has been unjustly conferred a benefit by the plaintiff
.
Return of that benefit is the remedy typically sought in a quasi-contract cause of action. (55 Cal. Jur. 3d (2024) Restitution § 2; Munoz v. MacMillan (2011) 195 Cal. App. 4th 648, 661.)
However, a plaintiff may not plead the existence of an enforceable contract and simultaneously maintain a quasi
-
contract claim unless the plaintiff also pleads facts suggesting that the contract may be unenforceable or invalid.
(
Berlanga v. Univ. of San Francisco
(2024) 100 Cal. App. 5th 75, 89.)
Here,
P
laintiff does not plead
a
quasi-contract
cause of action
. There are also express contracts under which
P
laintiff
seeks
to recover
,
and no allegations as to how those contracts are or may become invalid or unenforceable
.
Accordingly
, the Court sustains the demurrer to the tenth cause of action
.
CONCLUSION
For the foregoing reasons, the Court
SUSTAINS IN PART
and
OVERRULES IN PART
Moving
Defendants demurrer
without leave to amend
.
IT IS SO ORDERED.
DATED:
July
25
, 2024
___________________________
Edward B. Moreton, Jr.
Judge of the Superior Court
Ruling
SSI REFRIGERATED EXPRESS, INC., A CALIFORNIA CORPORATION VS UTILITY TRAILER MANUFACTURING COMPANY, A CALIFORNIA CORPORATION
Jul 29, 2024 |
21STCV13165
Case Number:
21STCV13165
Hearing Date:
July 29, 2024
Dept:
56
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT
SSI REFRIGERATED EXPRESS, INC.
, et al.
,
Plaintiffs,
vs.
UTILITY TRAILER MANUFACTURING
COMPANY,
et al.
,
Defendants.
CASE NO.:
21STCV13165
[TENTATIVE] ORDER RE: MOTIONS TO COMPEL RESPONSES TO:
1) SPECIAL INTERROGATORIES (SET TWO); AND 2) REQUESTS FOR PRODUCTION (SET 2); AND
MOTIONS TO COMPEL FURTHER RESPONSES TO: 3) REQUESTS FOR PRODUCTION (SET ONE); 4) FORM INTERROGATORIES (SET ONE); AND 5) REQUESTS FOR ADMISSIONS (SET 1)
Date:
July 29, 2024
Time: 8:30 a.m.
Dept. 56
Judge: Holly J. Fujie
MOVING PARTIES: (1-2)Jay Mehta (JM); and (3-5) Southern Counties Lubricants, LLC (Southern)
RESPONDING PARTY: Plaintiff SSI Refrigerated Express, Inc. (Plaintiff)
The Court has considered the moving, opposition and reply papers.
BACKGROUND
SSI alleges a single cause of action for negligence based on Plaintiff being provided hydraulic oil as opposed to what was ordered, i.e., motor oil, which resulted in damage to Plaintiffs semi fleet. The 55 gallon drum of hydraulic oil was mislabeled on the outer top portion of the barrel as motor oil. The drum was then sold to Plaintiff, who used it on a number of his vehicles. (Complaint, ¶10.) Plaintiff alleges that Defendants had a duty to inspect said barrel of oil to make certain, verify and confirm that the contents were correct and that the barrel's labeling was accurate. Since the barrel was mislabeled, defendant breached said duty when the defendant supplied the incorrect product to plaintiff. (
Id
. at ¶11.)
DISCUSSION
Legal Standard
The Motions to Compel
Interrogatories
Under Code of Civil Procedure (CCP) section 2030.290, subdivision (b), when a party directs interrogatories towards a party, and that party fails to serve a timely response, the party propounding the interrogatories may move for an order compelling response to the interrogatories.
(CCP § 2030.290, subd. (b).)
A party who fails to provide a timely response waives any objection, including one based on privilege or work product.
(
Id.
, § 2030.290, subd.
(a).)
The moving party need only show that the interrogatories were served on the opposing party, the time has expired to respond to the interrogatories and no responses have been served in order for the court to compel the opposing party to respond.
(
Leach v. Superior Court
(1980) 111 Cal.App.3d 902, 906.)
When a party fails to serve a timely response to an inspection demand, the party making the demand may move for an order compelling a response to the inspection demand.
(CCP § 2031.300, subd. (b).)
A party who fails to provide a timely response waives any objection, including one based on privilege or work product. (
Id.
, § 2031.300, subd. (a).)
Here, JM seeks responses to its Special Interrogatories (SIs) (Set 2) directed to Plaintiff.
No responses to those SIs have been served and, as such, JMs Motion to Compel Responses to its SIs (Set Two) is GRANTED.
Plaintiff is ordered to serve full, Code-compliant and verified responses to JMs SIs (Set Two), without objection, on JM within twenty (20) calendar days of the date of this order.
Requests for Production
When a party fails to serve a timely response to an inspection demand, the party making the demand may move for an order compelling a response to the inspection demand.
(CCP § 2031.300, subd. (b).)
A party who fails to provide a timely response waives any objection, including one based on privilege or work product. (
Id.
, § 2031.300, subd. (a).)
JM seeks responses to its Requests for Production (RFPs) (Set Two) directed to Plaintiff.
No responses to those RFPs have been served and, as, JMs Motion to Compel Responses to its RFPs (Set Two) is GRANTED.
Plaintiff is ordered to serve full, Code-compliant and verified responses, to JMs RFPs (Set Two), without objection, on JM within twenty (20) calendar days of the date of this order.
Motions to Compel Further
Document Requests
A motion to compel further responses to a demand for inspection or production of documents may be brought based on: (1) incomplete statements of compliance; (2) inadequate, evasive or incomplete claims of inability to comply; or (3) unmerited or overly generalized objections.
(Code Civ. Proc., § 2031.310(c).)
Motions to compel further responses must always be accompanied by a meet-and confer-declaration (per Code Civ. Proc., § 2016.040) demonstrating a reasonable and good faith attempt an informal resolution of each issue presented by the motion.
(
Id.
, §§ 2030.300(b), 2031.310(b)(2), 2033.290(b).)
They must also be accompanied by a separate statement containing the requests and the responses, verbatim, as well as reasons why a further response is warranted.
(Cal. Rules of Court, rule 3.1345(a).)
The separate statement must also be complete in itself; no extrinsic materials may be incorporated by reference.
(
Id.
, rule 3.1345(c).)
A motion to compel further production must set forth specific facts showing good cause justifying the discovery sought by the inspection demand.
(Code Civ. Proc., § 2031.310(b)(1).) It is not necessary for the motion to show that the material sought will be admissible in evidence. Good cause may be found to justify discovery where specific facts show that the discovery is necessary for effective trial preparation or to prevent surprise at trial. (
Associated Brewers Dist. Co. v. Superior Court
(1967) 65 Cal.2d 583, 586-588; CCP §§ 2017.010, 2019.030(a)(1) (Information is discoverable if it is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence and it is not unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive.);
Lipton v. Superior Court
(1996) 48 Cal.App.4th 1599, 1611-1612 (noting a party may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence).)
Southern seeks further responses to its Requests for Production (RFP) (Set One) nos. 7-12, 14, 17-20, 22-25, 35-38, 41 and 44. These RFPs are directed to contentions of Plaintiff in its Complaint regarding Defendants.
Plaintiff objects to RFPs relating to documents regarding various defendants, stating that it is not that defendant.
This is not the issue.
The allegations state that defendants took certain actions, and Plaintiff is required to answer as to its knowledge and as to documents supporting that knowledge regarding that defendant.
Southerns motion to compel further responses to its RFPs (Set One) is well-taken and is GRANTED.
Plaintiff is ordered to serve
serve full, Code-compliant and verified responses, to JMs RFPs (Set Two), without objection, on JM within twenty (20) calendar days.
Form Interrogatories
Under CCP section 2030.300, on receipt of a response to interrogatories, the propounding party may move for an order compelling a further response if the propounding party deems that any of the following apply: (1) an answer to a particular interrogatory is evasive or incomplete; (2) an exercise of the option to produce documents under CCP section 2030.230 is unwarranted or the required specification of those documents is inadequate; or (3) an objection to an interrogatory is without merit or too general.
(CCP § 2030.300, subd. (a).)
Southern seeks further responses to its FIs (Set One) Nos. 4.1, 7.1-7.3, 8.1-8.8, 9.1-9.2, 12.1 and 17.1.
The Court finds that further responses are warranted only as to FIs 4.1, 7.1, 7.3, and 17.1, and Plaintiff is ordered to serve further, Code-compliant, verified responses to Southerns FIs (Set One), without further objection, within twenty (20) days of the date of this order.
Requests for Admissions
Under CCP section 2033.290, subdivision (a), on receipt of a response to requests for admissions (RFAs), the propounding party may move for an order compelling a further response if the propounding party deems that either of the following apply: (1) an answer to a particular request is evasive or incomplete; or (2) an objection to a particular request is without merit or too general.
(CCP § 2033.230, subd. (a).) As to requests for admission: (1) if only a part of a request for admission is objectionable, the remainder of the request shall be answered; and (2) if an objection is made to request or to a part of a request, the specific ground for the objection shall be set forth clearly in the response, and if an objection is based on a claim of privilege then the particular privilege invoked shall be clearly stated. (CCP § 2033.230, subds. (a)-(b).)
Southern requests further responses to its RFAs (Set One) nos. 2-4, 14-15, 18-20, 22-24. Plaintiff objects on the ground that the information sought in the RFAs is not within their possession.
Plaintiff is required, however, to state this in a Code-compliant response according to CCP 2033.230.
Plaintiff is therefore ordered to serve
full, Code-compliant and verified responses, to Southerns RFAs (Set One), without futher objection,
within twenty (20) calendar days.
Sanctions
Under California
Code of Civil Procedure
(CCP) section 2023.030, where a party engages in misuse of discovery process, the court may impose monetary, issue, evidence, terminating, or contempt sanctions. (
See
CCP § 2023.030.) Misuses of the discovery process include failing to respond or to submit to an authorized method of discovery and disobeying a court order to provide discovery.
(
See
CCP § 2023.010, subds. (d), (g).)
The discovery statutes evince an incremental approach to discovery sanctions, starting with monetary sanctions and ending with the ultimate sanction of termination.
(
Doppes v. Bentley Motors, Inc.
(2009) 174 Cal.App.4th 967, 992.)
Discovery sanctions should be appropriate to the dereliction and should not exceed that which is required to protect the interests of the party entitled to but denied discovery.
(
Id
.)
Continuing misuses of the discovery process warrant incrementally harsher sanctions until the sanction is reached that will curb the abuse.
(
Id
.)
Where discovery violations are willful, preceded by a history of abuse, and the evidence shows that less severe sanctions would not produce compliance with discovery rules, the trial court is justified in imposing the ultimate sanction.
(
Id
.)
A trial court has broad discretion to impose discovery sanctions, but absent unusual circumstances, the court must generally find: (1) a failure to comply with a court order; and (2) the failure was willful.
(
Biles v. Exxon Mobil Corp
. (2004) 124 Cal.App.4th 1315, 1327.)
The court should consider the totality of the circumstances, including conduct of the party to determine if the actions were willful, the determent to the propounding party, and the number of formal and informal attempts to obtain discovery. (
Lang v. Hochman
(2000) 77 Cal.App.4th 1225, 1246.)
Reasonable sanctions are imposed against Plaintiff and its counsel, jointly and severally, in the following amounts: 1) on JMs Motion to Compel Responses to its SIs(Set Two), in the amount of $915; 2) on JMs Motion to Compel Responses to its RFPs (Set Two), in the amount of $630; 3) on Southerns Motion to Compel Further Responses to its RFPs (Set One), in the amount of $880; 4) on Southerns Motion to Compel Further Responses to Form Interrogatories, in the amount of $880; and 5) on Southerns Motion to Compel Further Responses to FAs, in the total amount of $880.
Said sanctions are to be paid to the respective moving parties within twenty (20) days of the date of this order.
Moving parties are ordered to give notice of this ruling.
Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.
Dated this 29th day of July 2024
Holly J. Fujie
Judge of the Superior Court