Preview
1 Collin J. Vierra (State Bar No. 322720)
EIMER STAHL LLP
2 99 Almaden Blvd., Suite 600
San Jose, CA 95113-1605
3 Telephone: (408) 889-1668
Email: cvierra@eimerstahl.com
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Attorney for Plaintiffs
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
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COUNTY OF SAN MATEO
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9 Robert Arntsen; Mary Lee; Arntsen Family Case No. 22-CIV-01148
10 Partnership, LP; and Brian Christopher Dunn
Custodianship; Date: May 26, 2023
11 Time: 9:00am
Plaintiffs, Dept. 21
12 v.
Hon. Robert D. Foiles
13
David M. Bragg; Silicon Valley Real Ventures
14 LLC; SVRV 385 Moore, LLC; SVRV 387 PLAINTIFFS’ OPPOSITION TO
Moore, LLC; Gregory J. Davis; Kevin Wolfe; DEMURRER OF DEFENDANTS SVRV
15 Jason Justesen; Paramont Woodside, LLC; 385 MOORE, LLC, SVRV 387 MOORE,
and Paramont Capital, LLC; LLC, GREGORY J. DAVIS, KEVIN
16 WOLFE, JASON JUSTESEN,
Defendants. PARAMONT WOODSIDE, LLC, AND
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PARAMONT CAPITAL, LLC TO
18 PLAINTIFFS’ FIRST AMENDED
COMPLAINT
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PLAINTIFFS’ OPPOSITION TO DEMURRER
TABLE OF CONTENTS
1
2 INTRODUCTION AND SUMMARY OF ARGUMENT ............................................................. 5
3 BACKGROUND ............................................................................................................................ 5
4 LEGAL STANDARD..................................................................................................................... 7
5
ARGUMENT .................................................................................................................................. 8
6
I. The Demurrer Should be Overruled Because It Flagrantly Misstates (or Simply Ignores)
7 Key Allegations Supporting Plaintiffs’ Claims ............................................................... 8
8 II. The Demurrer Should be Overruled Because Plaintiffs Have Properly Pleaded Each of
their Claims. ................................................................................................................... 10
9
10 A. Fraud/Intentional Misrepresentation/False Promise ...................................................... 10
11 B. Breach of Fiduciary Duty............................................................................................... 11
12 C. Fraudulent Concealment ................................................................................................ 13
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D. Breach of Contract and Oral Contract ........................................................................... 14
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E. Quasi-Contract/Restitution/Unjust Enrichment ............................................................. 16
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F. Business and Professions Code Section 17200.............................................................. 18
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17 G. Punitive Damages .......................................................................................................... 19
18 III. If the Demurrer is Sustained, Plaintiffs Should be Granted Leave to Amend. .............. 19
19 CONCLUSION ............................................................................................................................. 19
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PLAINTIFFS’ OPPOSITION TO DEMURRER
TABLE OF AUTHORITIES
1
Cases
2
Engalla v. Permanente Med. Grp., Inc.,
3 (1997) 15 Cal.4th 951 ............................................................................................................... 10
4 Feresi v. The Livery, LLC,
(2014) 232 Cal.App.4th 419 ..................................................................................................... 12
5
GAB Bus. Servs., Inc. v. Lindsey & Newsom Claim Servs., Inc.,
6 (2000) 83 Cal.App.4th 409 ................................................................................................. 11, 12
7 Goncharov v. Uber Techs., Inc.,
(2018) 19 Cal.App.5th 1157 ................................................................................................. 7, 11
8
Gressley v. Williams,
9 (1961) 193 Cal.App.2d 636 ........................................................................................................ 7
10 Grieves v. Super. Ct.,
(1984) 157 Cal.App.3d 159 ...................................................................................................... 19
11
Hobart v. Hobart Estate Co.,
12 (1945) 26 Cal.2d 412 ................................................................................................................ 12
13 In re ChinaCast Educ. Corp. Secs. Litig.,
(2015) 809 F.3d 471 ................................................................................................................. 11
14
Jones v. H. F. Ahmanson & Co.,
15 (1969) 1 Cal.3d 93 .................................................................................................................... 12
16 Kovich v. Paseo Del Mar Homeowners’ Ass’n,
(1996) 41 Cal.App.4th 863 ........................................................................................................ 14
17
Lazar v. Hertz Corp.,
18 (1999) 69 Cal.App.4th 1494 ..................................................................................................... 18
19 Unilogic, Inc. v. Burroughs Corp.
(1992) 10Cal.App.4th 612 ........................................................................................................ 16
20
Paulus v. Bob Lynch Ford, Inc.,
21 (2006) 139 Cal.App.4th 659 ..................................................................................................... 18
22 Pigeon Point Ranch, Inc. v. Perot,
(1963) 59 Cal.2d 227 ................................................................................................................ 12
23
Redfearn v. Trader Joe’s Co.,
24 (2018) 20 Cal.App.5th 989 ............................................................................................... 7, 8, 19
25 Richman v. Hartley,
(2014) 224 Cal.App.4th 1182 ................................................................................................... 14
26
SCC Acquisitions, Inc. v. Central Pac. Bank,
27 (2012) 207 Cal.App.4th 859 ..................................................................................................... 13
28 Stevens v. Super. Ct.,
(1986) 180 Cal.App.3d 605 ...................................................................................................... 13
3
PLAINTIFFS’ OPPOSITION TO DEMURRER
Stevens v. Super. Ct.,
1 (1986) 180 Cal.App.3d 605 ...................................................................................................... 13
2 Warner Constr. Corp. v. L.A.,
(1970) 2 Cal.3d 285 ............................................................................................................ 13, 14
3
Welborne v. Ryman-Carroll Found.,
4 (2018) 22 Cal.App.5th 719 ................................................................................................. 17, 18
5 Whipple v. C.I.R.,
(1963) 373 U.S. 193 ................................................................................................................. 16
6
Woods Lumber Co. v. Moore,
7 (1920) 183 Cal. 497 .................................................................................................................. 11
8 Rules
9 Civ. Code § 1573 .......................................................................................................................... 17
10 Civ. Code § 1622 .......................................................................................................................... 14
11 Civ. Code §§ 1709 ........................................................................................................................ 13
12 Civ. Code §§ 1710 ........................................................................................................................ 13
13 Corp. Code § 17704.01 ................................................................................................................. 15
14 Corp. Code § 17704.09 ................................................................................................................. 12
15 Corp. Code § 17701.11 ................................................................................................................. 15
16 Corp. Code § 17701.13 ................................................................................................................. 15
17 Other Authorities
18 Cal. Sec’y of State, Starting a Business – Limited Liability Company (LLC),
https://tinyurl.com/d88p2n83 ................................................................................................... 15
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PLAINTIFFS’ OPPOSITION TO DEMURRER
INTRODUCTION AND SUMMARY OF ARGUMENT
1
The Demurrer filed by Defendants SVRV 385 Moore, LLC, SVRV 387 Moore, LLC
2
(collectively, the “Moore Road LLCs”), Gregory J. Davis, Kevin Wolfe, Jason Justesen, Paramont
3
Capital, LLC, and Paramont Woodside, LLC (collectively, the “Paramont Defendants,” and
4
together with the Moore Road LLCs, “Demurring Defendants”) is meritless and should be
5
overruled. Plaintiffs’ First Amended Complaint (“FAC”) alleges detailed facts supporting each
6
cause of action against Demurring Defendants. Unable to identify any defects in Plaintiffs’ actual
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complaint, Demurring Defendants instead attack a strawman of their own creation, flagrantly
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misrepresenting (or simply ignoring) Plaintiffs’ well-pleaded allegations. By responding to a
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complaint of its own invention, the Demurrer violates the cardinal rule requiring the defendant to
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accept the truth of the plaintiff’s factual allegations. Given its most reasonable interpretation and
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read in context, the FAC states claims against Demurring Defendants for fraud, breach of fiduciary
12
duty, fraudulent concealment, breach of contract, unjust enrichment, and punitive damages. The
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Court should thus overrule the Demurrer and direct Demurring Defendants to answer the FAC.
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BACKGROUND
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Plaintiffs allege that they “were the initial members” of the Moore Road LLCs, which were
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“created by Defendants Kludt, Bragg, and SVRV to purchase, improve, and sell the propert[ies]
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located at” 385 and 387 Moore Road. (FAC ¶¶ 25–6.) Between 2017 and 2018, Plaintiffs invested
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several hundred thousand dollars in the Moore Road LLCs. (Id. ¶ 4.) In so doing, “Plaintiffs made
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clear that they were not investing in SVRV generally, but rather were investing in the Moore Road
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Project specifically.” (Id. ¶ 5.) Plaintiffs made their investments pursuant to the Effective
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Operating Agreements for the Moore Road LLCs, which listed Plaintiffs as “Passive Members”
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and listed SVRV as the “Active Member.” 1 (Id. ¶ 55.) Bragg was the sole Manager of the Moore
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Road LLCs from their inception in mid-2018 through May 2020. 2 (Id. ¶¶ 54, 120).
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In November 2018, the Moore Road LLCs, via their Manager, Bragg, conspired with the
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Paramont Defendants to create Unapproved Operating Agreements, which purported to replace
26
1
Although SVRV did not invest any capital into the Moore Road LLCs, its “ownership interest” was “derived from
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project management.” (FAC ¶ 55.)
28 2
While Bragg was the individual Manager of the Moore Road LLCs, Kludt also had actual and apparent authority to
act on behalf of the Moore Road LLCs, as he was a Managing Director of SVRV which, in turn, was the Active
Member of the Moore Road LLCs. (FAC ¶¶ 23, 55, 79; see infra Argument.II.A.)
5
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 the Effective Operating Agreements and abrogate Plaintiffs’ rights in the LLCs. (Id. ¶¶ 78–80, 97–
2 9.) Davis and Justesen, the President and Vice President of Paramont Capital, respectively, were
3 personally involved with this conspiracy. (Id. ¶¶ 6, 27, 29.) Through this conspiracy, Paramont
4 Woodside, which was created and capitalized by Paramont Capital for the express purpose of
5 investing in the Moore Road Project, obtained a controlling stake in the Moore Road LLCs. (Id.
6 ¶¶ 6, 31.) The Moore Road LLCs used Plaintiffs’ invested capital to pay Paramont Capital a
7 $20,000 due diligence and legal fee, and eventually paid Paramont Capital a management fee. (Id.
8 ¶¶ 12, 79.) Defendants concealed this conspiracy from Plaintiffs for seven months. (Id. ¶ 7.) When
9 Plaintiffs finally learned of the conspiracy to eliminate their ownership interest in the Moore Road
10 LLCs, they refused to sign the Unapproved Operating Agreements, “which directly contradicted
11 the arrangements set forth in” the Effective Operating Agreements that “they had approved in
12 February 2018” and which “governed the Moore Road LLCs.” (Id. ¶¶ 10, 99.)
13 In March 2019, the Moore Road LLCs, via their Manager, Bragg, fraudulently solicited an
14 additional $200,000 in loans from Plaintiffs. (Id. ¶¶ 87–8.) Both Plaintiffs’ and Defendants’
15 records reflected that these loans were for the Moore Road LLCs—not for SVRV. (Id.) At this
16 time, Plaintiffs still had not been told about the Unapproved Operating Agreements. (Id. ¶ 7.) In
17 March 2020, the Moore Road LLCs, again via their Manager, Bragg, fraudulently solicited
18 additional loans from Plaintiffs for the Moore Road LLCs, telling them that if they failed to make
19 these loans, the lender would foreclose on the properties and wipe out the entirety of Plaintiffs’
20 investments. (Id. ¶¶ 11, 110–2.)
21 In May 2020, Paramont Woodside, 3 invoking terms in the Unapproved Operating
22 Agreements, assumed management of the Moore Road LLCs. (Id. ¶¶ 12, 120.) Defendants then
23 conspired to further amend the Unapproved Operating Agreements to increase the Paramont
24 Defendants’ putative return from Moore Road LLCs and to recharacterize Plaintiffs’ recent loans
25 to the Moore Road LLCs as subordinate equity contributions. (Id. ¶ 123.) After the Moore Road
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27 3
Paramont Woodside was incorporated and capitalized by Paramont Capital for the express purpose of investing in
the Moore Road Project. (FAC ¶ 31.) Davis, Wolfe, and Justesen were the officers of the Paramont LLCs. (Id. ¶¶ 27–
28 9, 31) Davis also became the individual Manager of Paramont Woodside. (Id. ¶ 12.) Like Kludt, each of the Paramont
Defendants had actual and apparent authority to act on behalf of the Moore Road LLCs after taking over management
via Paramont Woodside. (See supra n.2.)
6
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 LLCs sold the properties in September and October 2020, Defendants again conspired to secretly
2 amend the Unapproved Operating Agreements to secure for themselves hundreds of thousands of
3 dollars in profits from the Moore Road LLCs while leaving Plaintiffs with nothing. (Id. ¶¶ 137–
4 40.) Defendants concealed each of these actions from Plaintiffs. (Id. ¶¶ 128, 140.)
5 Plaintiffs allege that Defendants not only operated the Moore Road LLCs for their own
6 enrichment, rather than in the interests of the LLCs’ minority members (i.e., Plaintiffs), but that
7 Defendants severely mismanaged the Moore Road LLCs, which mismanagement they also
8 concealed from Plaintiffs. (E.g., id. ¶¶ 72, 86, 103.) While managing the Moore Road LLCs, Bragg
9 also siphoned funds from the LLCs for his personal enrichment and for SVRV’s other real estate
10 projects. (Id. ¶¶ 13, 24–6, 141–3.) But after taking over management of the Moore Road LLCs,
11 the Paramont Defendants, including Davis and the Paramont entities’ CFO, Wolfe, allowed Bragg
12 to continue working for the Moore Road LLCs, and to profit from them, despite recognizing his
13 incompetence and the impropriety of his involvement and enrichment. (Id. ¶¶ 12, 28, 124.)
14 LEGAL STANDARD
15 “A demurrer tests the legal sufficiency of the factual allegations in a complaint.” (Redfearn
16 v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 996.) The Court must assume “the truth of the
17 properly pleaded factual allegations, facts that reasonably can be inferred from those expressly
18 pleaded and matters of which judicial notice has been taken.” (Id.) The Court must “give the
19 complaint a reasonable interpretation, reading it as a whole and its parts in their context.”
20 (Goncharov v. Uber Techs., Inc. (2018) 19 Cal.App.5th 1157, 1165 [citation omitted].) The Court
21 must “construe the complaint ‘liberally . . . with a view to substantial justice between the parties[.]”
22 (Id. [citation omitted]) “In determining whether the complaint is sufficient as against the demurrer
23 . . . if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the
24 hands of the court against the defendants the complaint will be held good although the facts may
25 not be clearly stated.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639 [emphasis added].)
26 If a complaint is defective, “great liberality should be exercised” in granting leave to amend.
27 (Redfearn, 20 Cal.App.5th at 996; Rule of Court 3.1320(g) [presumption of right to amend].)
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PLAINTIFFS’ OPPOSITION TO DEMURRER
ARGUMENT
1
I. The Demurrer Should be Overruled Because It Flagrantly Misstates (or Simply
2 Ignores) Key Allegations Supporting Plaintiffs’ Claims
3 The central tenet of a demurrer is that it assumes “the truth of the properly pleaded factual
4 allegations.” (Redfearn, 20 Cal.App.5th at 996.) But the very first sentence of the Demurrer grossly
5 mischaracterizes Plaintiffs’ allegations and the central theory of their entire case. Indeed, the
6 Demurrer appears to be based on a different complaint than the one Plaintiffs filed.
7 The Demurrer begins with this assertion: “According to Plaintiffs’ First Amended
8 Complaint (“FAC”), Plaintiffs loaned money to defendant Silicon Valley Real Ventures, LLC
9 (SVRV).” (Dem. III.) But that is not what Plaintiffs allege. To the contrary, Plaintiffs expressly
10 and repeatedly allege that they invested money with, and loaned money to, the Moore Road
11 LLCs—not to SVRV—and that this money was misappropriated by all Defendants, including
12 Demurring Defendants. 4 Indeed, the gravamen of the FAC is that Plaintiffs had an ownership
13 interest in the Moore Road LLCs under the terms of the Effective Operating Agreements and that
14 Defendants, including Demurring Defendants, secretly and unlawfully misappropriated Plaintiffs’
15 funds for their own enrichment by purporting to eliminate Plaintiffs’ ownership interest in the
16 Moore Road LLCs without authorization. 5 Indeed, Plaintiffs expressly allege that when they
17 learned of this conspiracy seven months later, they refused to ratify the purported abrogation of
18 their membership in the Moore Road LLCs. (See, e.g., FAC ¶¶ 10, 99.)
19 The Demurrer’s “Factual Background” completely ignores the host of factual allegations
20 supporting Plaintiffs’ claim to an ownership interest in the Moore Road LLCs. Indeed, the
21 Demurrer’s “Factual Background” does not even mention the Effective Operating Agreements.
22 Instead, it discusses only the Unapproved Operating Agreements, which Plaintiffs expressly allege
23 were never operative because they purported to abrogate Plaintiffs’ interests in the Moore Road
24
25
4
See, e.g., FAC ¶ 5 [“Plaintiffs made clear that they were not investing in SVRV generally, but rather were investing
in the Moore Road Project specifically.”]; id. [Plaintiffs “understood that they would be members of [the Moore Road]
26 LLCs.”]; id. ¶¶ 25–6 [“Plaintiffs were the initial members of” the Moore Road LLCs]; id. ¶ 54 [Plaintiffs were “the
majority owners with SVRV” of the Moore Road LLCs]; id ¶¶ 55, 67 [“Plaintiffs [were] the sole Passive Members
of the [Moore Road] LLCs”]; id. ¶ 88 [Plaintiffs loaned money for “SVRV/Moore Road”]; id. ¶ 110–12 [Plaintiffs
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loaned additional money to the Moore Road LLCs]; ¶ 126 [referring to “smaller investors in the Moore Road LLCs,
including Plaintiffs”].
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5
See, e.g., FAC ¶ 6 [Defendants conspired to “unlawfully amend the operating agreements and purport to remove
Plaintiffs from membership in the [Moore Road] LLCs.”]; id. ¶¶ 78–80; id. ¶¶ 97–9.
8
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 LLCs without Plaintiffs’ unanimous written authorization. 6 The Demurrer further asserts that “[n]o
2 specific conduct is alleged with regard to the Moore Road LLCs.” (Dem. 1.) But that is not a fair
3 or reasonable reading of the FAC. Plaintiffs expressly allege that Bragg was the Manager of the
4 Moore Road LLCs (FAC ¶ 54), that SVRV was the Active Member of the Moore Road LLCs, (id.
5 ¶ 55), that Bragg and Kludt were the Managing Directors of SVRV (id. ¶¶ 22–3), that Bragg
6 operated SVRV as his alter ego (id. ¶ 24), and that the Moore Road LLCs were also Bragg’s alter
7 egos (id. ¶¶ 25–6, 141–2). Plaintiffs specifically allege that misrepresentations about, and
8 misappropriations of, their contributions to the Moore Road LLCs were made by Bragg, Kludt,
9 and SVRV—all of whom acted on behalf of the Moore Road LLCs at various times—and by the
10 Moore Road LLCs themselves. (See, e.g., id. ¶¶ 166, 168, 170, 172, 185, 187, 189, 191, 212–5,
11 255, 257.) Plaintiffs also allege that the Paramont Defendants ultimately assumed management of
12 the Moore Road LLCs and that the once in charge they (a) forced Bragg to amend the Unapproved
13 Operating Agreements to give themselves an even larger return on their investment, (b) sold the
14 properties, and (c) distributed the proceeds of those sales exclusively to themselves and to Bragg
15 (in the form of a sales commission) while returning no capital to Plaintiffs in violation of the
16 Effective Operating Agreements and the terms of Plaintiffs’ loans. (Id. ¶¶ 12, 126, 130–4, 137–9.)
17 Contrary to the Demurrer’s assertion, Plaintiffs also allege numerous “facts establishing a[]
18 relationship” with each of the Paramont Defendants. 7 (Dem. 1.)
19
6
Compare Dem. 1 [discussing the Unapproved Operating Agreements, and citing FAC ¶¶ 78–9], with FAC ¶¶ 78–9
20 [“[T]he SVRV Defendants and the Paramont Defendants unlawfully purported to amend the Effective Operating
Agreements for the Moore Road LLCs . . . without Plaintiffs’ knowledge or consent,” even though “by this time Kludt
21 and Bragg had been operating the Moore Road LLCs for approximately five months pursuant to the terms of the
Effective Operating Agreements”], id. ¶ 80 [“Plaintiffs never would have consented to such wholesale amendments
22 to the Effective Operating Agreements, which is likely why Defendants kept the existence of the Unapproved
Operating Agreements hidden from Plaintiffs for more than seven months.”], and id. ¶ 83 [“[T]he Effective Operating
Agreements[ ] required unanimous written consent from Plaintiffs” to be amended.].
23
7
Among other things, Plaintiffs allege a conspiracy by Davis, Justesen, and Paramont Capital “to unlawfully amend
24 the [Effective] [O]perating [A]greements and purport to remove Plaintiffs from membership in the LLCs” despite
receiving documents during due diligence putting them on notice that the LLCs were already governed by the Effective
25 Operating Agreements and that any revisions to those agreements required Plaintiffs’ authorization. (FAC ¶¶ 6, 76.)
Plaintiffs further allege that Paramont Woodside, itself managed by Davis, took over management of the Moore Road
26 LLCs, and in that capacity unlawfully distributed the profits from the LLCs to Defendants while leaving Plaintiffs
with nothing. (Id. ¶¶ 12, 27, 137.) Plaintiffs further allege that Davis and Wolfe forced Bragg to amend the Unapproved
27 Operating Agreements, purporting to increase Paramont Woodside’s “preferred return” at Plaintiffs’ expense. (Id.
¶ 12.) Plaintiffs allege that Davis and Wolfe paid Bragg an improper broker’s fee from the Moore Road Project, again
28 at Plaintiffs’ expense. (Id.) Plaintiffs allege that at relevant times, Wolfe was “the primary individual in charge of the
finances” for the Moore Road LLCs, and the CFO of the Paramont LLCs that took control over the Moore Road LLCs.
9
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Simply put, Demurring Defendants are attacking a complaint of their own invention and
2 ignoring (or creatively revising) the myriad factual allegations that support Plaintiffs’ claims. For
3 this reason alone, the Demurrer should be overruled.
4 II. The Demurrer Should be Overruled Because Plaintiffs Have Properly Pleaded
Each of their Claims.
5
A. Fraud/Intentional Misrepresentation/False Promise
6
The elements of fraud are “(a) misrepresentation (false representation, concealment, or
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nondisclosure); (b) knowledge or falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce
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reliance; (d) justifiable reliance; and (e) resulting damage.” (Engalla v. Permanente Med. Grp.,
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Inc. (1997) 15 Cal.4th 951, 974; see also id. at 973–74 [“promissory fraud” is a “subspecies of
10
fraud and deceit” in which “a promise is made without” the intention to perform the promise].)
11
Plaintiffs have adequately pleaded each of these elements against the Moore Road LLCs.
12
Among other allegations, Plaintiffs allege that the Moore Road LLCs—acting through their
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Manager, Bragg—falsely and knowingly told Robert (“Bob”) Arntsen that he would receive a
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substantial return from his investment in the SVRV Land project (which was governed by the same
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management team) that would be rolled over into the Moore Road LLCs. (FAC ¶¶ 37–8, 68.)
16
Plaintiffs also allege that the Moore Road LLCs, again speaking through Bragg—falsely and
17
knowingly represented in March 2019 that Plaintiffs would be repaid promptly with 12% interest
18
if they provided $200,000 in short-term loans. (Id. ¶¶ 87–8). Bragg, speaking on behalf of the
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Moore Road LLCs, also represented in March 2020 that Plaintiffs would be repaid with 12%
20
interest if they extended additional loans to prevent the bank from foreclosing on the properties,
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and that their loans would have priority over all equity investments. (Id. ¶¶ 110–2.) Plaintiffs
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allege that the Moore Road LLCs intended that Plaintiffs would rely, and that Plaintiffs did in fact
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rely, on these misrepresentations, causing them hundreds of thousands of dollars in damages. (Id.
24
¶¶ 1, 12, 167, 169, 171, 186, 188, 190.)
25
Indeed, the Demurrer admits that Plaintiffs allege numerous examples of false statements
26
27 (Id. ¶ 28.) Plaintiffs allege that Justesen was the Vice President of Paramont Capital, which incorporated and
capitalized Paramont Woodside for the express purpose of investing in the Moore Road Project, and which took an
28 improper management fee from the Moore Road Project. (Id. ¶¶ 29, 132.) And Plaintiffs allege that each of the
Paramont Defendants took a hefty profit from the Moore Road LLCs and was unjustly enriched at Plaintiffs’ expense.
(Id. ¶¶ 132–34, 137.)
10
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 with particularity, including who spoke, to whom, when the statements were made, and what was
2 said. (Dem. 4.) The Demurrer recognizes that these false statements were uttered by Bragg and
3 Kludt (id.), but it ignores Plaintiffs’ express allegations that (a) Bragg was the Manager of the
4 Moore Road LLCs (FAC ¶¶ 54, 120), and (b) that Bragg used the Moore Road LLCs as his alter
5 egos and moved funds indiscriminately between the Moore Road LLCs and SVRV, which he
6 likewise operated as his alter ego. 8 (FAC ¶¶ 22–3, 25–6, 141–2; see also supra n.2 [Kludt had
7 authority to act on behalf of the Moore Road LLCs].) The only “reasonable interpretation” of the
8 FAC, “reading it as a whole and its parts in their context,” is that Bragg is alleged to have spoken
9 on behalf of the Moore Road LLCs when he made various misrepresentations to Plaintiffs to
10 induce them to contribute to the Moore Road LLCs. (Goncharov, 19 Cal.App.5th at 1165.) Indeed,
11 the Demurrer does not contest that Bragg had actual and apparent authority over the Moore Road
12 LLCs—and it cannot. 9 The FAC thus unmistakably alleges that the Moore Road LLCs, represented
13 by Bragg, their Manager, made knowing, material misrepresentations to Plaintiffs with the intent
14 that Plaintiffs would rely on those misrepresentations; that Plaintiffs did in fact rely on those
15 misrepresentations; and that Plaintiffs were damaged thereby.
16 Because Plaintiffs allege that Bragg had authority to speak on behalf of the Moore Road
17 LLCs and identify exactly which false statements he made on behalf of the Moore Road LLCs,
18 Plaintiffs have stated a claim against the Moore Road LLCs for fraud.
19 B. Breach of Fiduciary Duty
20 “The elements of a cause of action for breach of fiduciary duty are the existence of a
21 fiduciary relationship, its breach, and damage proximately caused by that breach.” (Knox v. Dean
22 (2012) 205 Cal.App.4th 417 [citation omitted].) Fraudulent intent is not required. (Civ. Code
23
24
8
The Demurrer contends that the FAC lacks factual allegations to support the alter ego allegation (Dem. 5 n.1), but
the FAC specifically alleges that Bragg commingled corporate funds (including those of the Moore Road LLCs) and
25 siphoned investor funds from the LLCs for his personal enrichment (id. ¶¶ 25–6, 141–2). Bragg’s cavalier treatment
of the governing Effective Operating Agreements and complete disregard of corporate formalities further confirms
26 that he controlled the Moore Road LLCs as his alter ego until Paramont Woodside assumed control. (Id.)
9
See, e.g., GAB Bus. Servs., Inc. v. Lindsey & Newsom Claim Servs., Inc. (2000) 83 Cal.App.4th 409, 417 [corporate
27 officer can bind corporation in dealing with third parties when officer has actual or apparent authority to act on behalf
of corporation]; see also Woods Lumber Co. v. Moore (1920) 183 Cal. 497 [because contract was signed by manager,
28 corporation was bound by it and plaintiff did not have to prove the contract was authorized]; In re ChinaCast Educ.
Corp. Secs. Litig. (9th Cir. 2015) 809 F.3d 471, 472–73 [corporate officer’s fraudulent misrepresentations, including
scienter, imputed to corporation even when officer was “looting” from corporation and therefore was adverse to it].
11
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 § 1573.) As Demurring Defendants acknowledge, managers and controlling members of LLCs
2 owe “fiduciary duties to the entity and other members.” (Dem. 10 [citing Corp. Code § 17704.09;
3 Feresi v. The Livery, LLC (2014) 232 Cal.App.4th 419, 425].) This includes duties of loyalty, care,
4 and good faith and fair dealing. (Corp. Code § 11704.09(a)–(b).) Managers are “obligated to act
5 with the utmost loyalty and in the highest good faith when dealing with any member of the LLC,”
6 and “may not obtain any advantage over . . . any [] member of the LLC . . . by even the slightest
7 misrepresentation or concealment.” (Feresi, 232 Cal.App.4th at 425.) An “officer of a corporation”
8 also “acts in a fiduciary capacity.” (Pigeon Point Ranch, Inc. v. Perot (1963) 59 Cal.2d 227, 233.)
9 Plaintiffs adequately allege each of the elements for breach of fiduciary duty.
10 Plaintiffs allege that they were passive members in the Moore Road LLCs. (FAC ¶ 55.)
11 They further allege that not only did the Paramont Defendants obtain a majority interest in the
12 Moore Road LLCs in November 2018 by virtue of their $2,000,000 investment (id. ¶ 6), but that
13 in May 2020 they assumed formal management of the Moore Road LLCs (id. ¶ 120). Demurring
14 Defendants thus owed heightened fiduciary duties to Plaintiffs and had an obligation “not [to] use
15 their power to control corporate activities to benefit themselves alone or in a manner detrimental
16 to the minority.” 10 (Jones, 1 Cal.3d at 108.)
17 Plaintiffs expressly allege that Demurring Defendants violated their duties of loyalty, care,
18 and good faith and fair dealing by numerous unlawful acts. For example, Plaintiffs allege that
19 “Paramont Woodside—acting as both Manager and Majority Shareholder”—acted to benefit “its
20 own interests to the detriment of smaller investors in the Moore Road LLCs, including Plaintiffs,”
21 by misappropriating hundreds of thousands of dollars that belonged to Plaintiffs. (FAC ¶¶ 6, 12,
22 30, 125–6, 137.) Plaintiffs further allege that Paramont Capital, which incorporated and capitalized
23 Paramont Woodside, itself took an unauthorized management fee from the Moore Road LLCs at
24 Plaintiffs’ expense. (Id. ¶¶ 12, 132, 137.) Plaintiffs also allege that Davis, Wolfe, and Justesen
25
26 10
See, e.g., GAB Bus. Servs., 83 Cal.App.4th at 419 n.1 [defendants “fail[ed] to identify any case in which a corporate
officer was found not to owe a fiduciary duty to the corporation”]; Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412
27 [the rule that “denies the existence of any fiduciary duty in the case of an officer having knowledge of special facts
that enable him to profit at the expense of a shareholder . . . is not in accord with accepted principles of justice and
28 must be rejected”]; Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108 [“[M]ajority shareholders, either singly
or acting in concert to accomplish a joint purpose, have a fiduciary responsibility to the minority and to the corporation
to use their ability to control the corporation in a fair, just, and equitable manner.”].
12
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 were the officers of Paramont Capital and profited from both this management fee and from its
2 stake in Paramont Woodside, again at Plaintiffs’ expense. 11 (Id. ¶¶ 27–9, 233, 263.) Plaintiffs have
3 thus adequately pleaded a claim for breach of fiduciary duty against Demurring Defendants.
4 C. Fraudulent Concealment
5 “Where failure to disclose a material fact is calculated to induce a false belief, the
6 distinction between concealment and affirmative misrepresentation is tenuous. Both are
7 fraudulent. An active concealment has the same force and effect as a representation which is
8 positive in form.” (Stevens v. Super. Ct. (1986) 180 Cal.App.3d 605, 609.) California law
9 recognizes multiple theories of fraudulent concealment. (See Civ. Code §§ 1709–10.) Even “[i]n
10 transactions which do not involve fiduciary or confidential relations, a cause of action for non-
11 disclosure of material facts may arise” where “the facts are known or accessible only to defendant,
12 and defendant knows they are not known to or reasonably discoverable by the plaintiff.” (Warner
13 Constr. Corp. v. L.A. (1970) 2 Cal.3d 285, 294.) 12 Plaintiffs adequately allege fraudulent
14 concealment against each of Demurring Defendants under multiple theories.
15 Among other material facts, Plaintiffs allege that Demurring Defendants concealed from
16 them (1) the existence of the Unapproved Operating Agreements (and amendments thereto) that
17 purported to abrogate Plaintiffs’ ownership interests in the Moore Road LLCs (e.g., FAC ¶¶ 6–7,
18 12, 78–80); (2) Paramont Woodside’s decision to oust Bragg and assume management of the LLCs
19 (id. ¶ 149); (3) the precarious state of the Moore Road Project long before it sold (e.g., id. ¶¶ 70,
20 72); (4) rampant management failures, including the failure to keep proper books and records (e.g.,
21 id. ¶¶ 86, 103); (5) the real purposes for which Plaintiffs’ loans were solicited (id. ¶¶ 88, 112); (6)
22 numerous management decisions that were contrary to the interests of minority investors like
23 Plaintiffs, but instead for the benefit of management and insiders (e.g., id. ¶¶ 12, 112, 118, 124–
24
25
11
Plaintiffs further allege that Wolfe acted as the CFO of the Paramont entities and at relevant times, “was the primary
individual in charge of finances” for the Moore Road LLCs. (Id. ¶¶ 28, 103.) Plaintiffs also allege that Paramont
26 Defendants breached their duty of care in their management of the LLCs, including by letting Bragg continue to work
on the Moore Road Project long after they were aware of his incompetence. (See, e.g., FAC ¶¶ 12, 70–3, 124.)
Plaintiffs allege that these breaches damaged them in the amount of hundreds of thousands of dollars. (Id. ¶¶ 12, 137.)
27
12
See also SCC Acquisitions, Inc. v. Central Pac. Bank (2012) 207 Cal.App.4th 859, 860 [“A duty to speak may arise
28 in four ways: it may be directly imposed by statute or other prescriptive law; it may be voluntarily assumed by
contractual undertaking; it may arise as an incident of a relationship between the defendant and the plaintiff; and it
may arise as a result of other conduct by the defendant that makes it wrongful for him to remain silent.”].
13
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 8); and (7) the hefty profits that Demurring Defendants reaped from the LLCs while Plaintiffs were
2 wiped out (id. ¶¶ 137–40.). Demurring Defendants were obligated to disclose these facts to
3 Plaintiffs for multiple reasons, including because they made “representations but [did] not disclose
4 facts which materially qualif[ied] the facts disclosed”; “the facts [were] known or accessible only
5 to” Demurring Defendants and they knew “they [were] not known to or reasonably discoverable”
6 by Plaintiffs; they “actively conceal[ed] discovery” of these facts from Plaintiffs; and they owed
7 Plaintiffs fiduciary duties. (Warner Constr. Co., 2 Cal. 3d at 294.)
8 The Demurrer contends that Plaintiffs fail to state a fraudulent concealment claim because
9 they fail to allege a fiduciary relationship. (Dem. 8.) But the FAC alleges numerous facts
10 supporting the existence of a fiduciary relationship (see supra Argument.II.B), and Plaintiffs allege
11 that Demurring Defendants exclusively possessed material facts that they actively concealed from
12 Plaintiffs, which independently creates a duty to disclose (see Warner Constr. Co., 2 Cal. 3d at
13 294; Kovich v. Paseo Del Mar Homowners’ Ass’n (1996) 41 Cal.App.4th 863, 866 [duty to
14 disclose may arise even “without a confidential or fiduciary relationship where the defendant . . .
15 has knowledge of material facts which are not accessible to the plaintiff”]). Demurring Defendants
16 also contend that Plaintiffs fail to make “any specific allegations of fraud committed by demurring
17 Defendants.” (Dem. 9.) That argument lacks merit because, as explained above, the FAC alleges
18 with particularity facts showing that Demurring Defendants committed fraud (and fraudulent
19 concealment). (See supra Argument.I.)
20 D. Breach of Contract and Oral Contract
21 “To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the
22 contract, (2) the plaintiff’s performance of the contract or excuse for nonperformance, (3) the
23 defendant’s breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224
24 Cal.App.4th 1182, 1186.) “All contracts may be oral, except such as are specifically required by
25 statute to be in writing.” (Civ. Code § 1622.) Plaintiffs have adequately pleaded each element.
26 Plaintiffs allege that the Effective Operating Agreements governed the Moore Road LLCs
27 from the moment they were registered with the Secretary of State, and that Plaintiffs were members
28 of the Moore Road LLCs from their inception because they invested hundreds of thousands of
14
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 dollars in the Moore Road LLCs pursuant to the terms of the Effective Operating Agreements.
2 (FAC ¶¶ 59, 61–62, 64–65, 67.) Plaintiffs allege that the Effective Operating Agreements required
3 unanimous written consent to be amended. (Id. ¶ 83.) Plaintiffs allege that all other investments in
4 the Moore Road LLCs—including the Paramont Defendants’ investment—were governed by the
5 terms of the Effective Operating Agreements. 13 The Effective Operating Agreements “stated that
6 net profits would be distributed first to Passive Members, and after they had recovered their capital
7 contributions, then to all Members in proportion to their Membership Interests,” after debts were
8 paid off. (Id. ¶¶ 5, 55.) The Moore Road LLCs were thus contractually obligated to distribute the
9 proceeds on a pro rata basis to all Passive Members after the properties were sold. Plaintiffs further
10 allege that they orally contracted with the Moore Road LLCs in March 2019 and April 2020,
11 extending loans in exchange for a promised 12% return that would take priority over equity
12 distributions. (Id. ¶¶ 8, 11, 87–8, 110–2.) Plaintiffs also allege that the Moore Road LLCs,
13 managed by the Paramont Defendants, breached each of these contracts. (Id. ¶¶ 137, 241–3, 257.)
14 The FAC alleges that Demurring Defendants breached the terms of the Effective Operating
15 Agreements by purporting to amend those agreements without Plaintiffs’ unanimous written
16 consent. (Id. ¶¶ 78–83, 241.) Demurring Defendants again breached the agreements after the
17 properties were sold by distributing all profits to themselves (including via management fees)
18 instead of first repaying the loans (with interest) and then distributing net profits in proportion to
19 the members’ interests. (Id. ¶¶ 12, 137, 242–3.) Plaintiffs thereby suffered hundreds of thousands
20 of dollars in damages. (Id.) Thus, contrary to Demurring Defendants’ contention that Plaintiffs’
21 breach-of-contract claim is “fatally uncertain” (Dem. 10), Plaintiffs have squarely alleged the
22 terms of the contracts, Plaintiffs’ performance, the numerous breaches, and Plaintiffs’ damages.
23 As to the oral contracts, the Demurrer contends that Plaintiffs fail to allege facts
24
13
The allegation that the Moore Road LLCs were governed by the Effective Operating Agreements from their
25 inception follows from California law, which requires all LLCs to have an operating agreement. (See Corp. Code
§ 17701.11; id. § 17704.01(b); see also Cal. Sec’y of State, Starting a Business – Limited Liability Company (LLC),
26 https://tinyurl.com/d88p2n83 [“[A]n operating agreement among the members as to the affairs of the LLC and the
conduct of its business is required. The LLC does not file the operating agreement with the Secretary of State but
27 maintains it at the office where the LLC’s records are kept.”] [emphasis added]; Corp. Code § 17701.13(d)(5) [“Each
limited liability shall maintain in writing . . . [a] copy of the limited liability company’s operating agreement, if in
28 writing, and any amendments thereto.”].) The Moore Road LLCs could not have operated for 4–5 months without an
operating agreement, and the only operating agreements that had been drafted and approved by the time the LLCs
were registered with the Secretary of State were the Effective Operating Agreements. (FAC ¶¶ 67, 79.)
15
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 “supporting a meeting of the minds between them and the Moore Road LLCs,” including “when
2 [the] alleged oral agreement was reached” and “who [] entered into the oral agreement(s) as to the
3 Moore Road LLCs.” (Dem. 12.) Nonsense. Plaintiffs allege the precise date (March 19, 2019) on
4 which Bragg—acting as Manager of the Moore Road LLCs (see FAC ¶ 120)—solicited $200,000
5 in short-term loans for the Moore Road LLCs for the promise of a prompt 12% return. (FAC ¶¶ 8,
6 87.) Plaintiffs also allege that they made a second set of loans to the LLCs on a precise date (April
7 1, 2020) after Bragg—still acting as Manager of the Moore Road LLCs—promised them 12%
8 interest. (Id. ¶¶ 110–2.) The FAC alleges that the Moore Road LLCs breached each of the oral
9 contracts by failing to repay Plaintiffs as promised, including after the Paramont Defendants took
10 control of the LLCs and sold the properties. (Id. ¶¶ 12, 126, 137, 257.)
11 The Demurrer also contends that Plaintiffs’ loans are “invalid” under Civil Code section
12 1624(a)(7). (Dem. 12.) That argument is frivolous. First, section 1624(a)(7) applies only to loans
13 “greater than one hundred thousand dollars,” and Plaintiffs allege that each of their loans was in
14 the amount of $100,000 or less. (FAC ¶¶ 88, 111.) Second, the FAC does not suggest that
15 “Plaintiffs were in the business of loaning money,” as the Demurrer argues. (Dem. 12.) To begin
16 with, Plaintiffs did not make “multiple previous loans”—rather, Plaintiffs allege that Bob and the
17 Partnership each made two total loans, and Mary and the Custodianship each made a single loan.
18 (FAC ¶¶ 88, 111.) The Demurrer fails to cite any authority for the proposition that making one
19 “previous loan” puts an individual “in the business of loaning money.” 14
20 E. Quasi-Contract/Restitution/Unjust Enrichment
21 “In general, a person who has been unjustly enriched at the expense of another is required
22 to make restitution to the other. Ordinarily the benefit to the one and the loss to the other are co-
23 extensive, and the result . . . is to compel the one to surrender the benefit which he has received
24 and thereby to make restitution to the other for the loss which he has suffered.” (Unilogic, Inc. v.
25 Burroughs Corp. (1992) 10 Cal.App.4th 612, 627–28 [internal citations omitted].) Similarly,
26 quasi-contract “is an obligation . . . created by the law without regard to the intention of the parties,
27 and is designed to restore the aggrieved party to [its] former position by return of the thing or its
28
14
See, e.g., Whipple v. C.I.R. (1963) 373 U.S. 193, 203–04 [petitioner was “not engaged in the business of money
lending” even though he incorporated numerous entities and repeatedly extended credit over several years].
Preview
1 Collin J. Vierra (State Bar No. 322720) EIMER STAHL LLP 2 99 Almaden Blvd., Suite 600 San Jose, CA 95113-1605 3 Telephone: (408) 889-1668 Email: cvierra@eimerstahl.com 4 Attorney for Plaintiffs 5 6 SUPERIOR COURT OF THE STATE OF CALIFORNIA 7 COUNTY OF SAN MATEO 8 9 Robert Arntsen; Mary Lee; Arntsen Family Case No. 22-CIV-01148 10 Partnership, LP; and Brian Christopher Dunn Custodianship; Date: May 26, 2023 11 Time: 9:00am Plaintiffs, Dept. 21 12 v. Hon. Robert D. Foiles 13 David M. Bragg; Silicon Valley Real Ventures 14 LLC; SVRV 385 Moore, LLC; SVRV 387 PLAINTIFFS’ OPPOSITION TO Moore, LLC; Gregory J. Davis; Kevin Wolfe; DEMURRER OF DEFENDANTS SVRV 15 Jason Justesen; Paramont Woodside, LLC; 385 MOORE, LLC, SVRV 387 MOORE, and Paramont Capital, LLC; LLC, GREGORY J. DAVIS, KEVIN 16 WOLFE, JASON JUSTESEN, Defendants. PARAMONT WOODSIDE, LLC, AND 17 PARAMONT CAPITAL, LLC TO 18 PLAINTIFFS’ FIRST AMENDED COMPLAINT 19 20 21 22 23 24 25 26 27 28 1 PLAINTIFFS’ OPPOSITION TO DEMURRER TABLE OF CONTENTS 1 2 INTRODUCTION AND SUMMARY OF ARGUMENT ............................................................. 5 3 BACKGROUND ............................................................................................................................ 5 4 LEGAL STANDARD..................................................................................................................... 7 5 ARGUMENT .................................................................................................................................. 8 6 I. The Demurrer Should be Overruled Because It Flagrantly Misstates (or Simply Ignores) 7 Key Allegations Supporting Plaintiffs’ Claims ............................................................... 8 8 II. The Demurrer Should be Overruled Because Plaintiffs Have Properly Pleaded Each of their Claims. ................................................................................................................... 10 9 10 A. Fraud/Intentional Misrepresentation/False Promise ...................................................... 10 11 B. Breach of Fiduciary Duty............................................................................................... 11 12 C. Fraudulent Concealment ................................................................................................ 13 13 D. Breach of Contract and Oral Contract ........................................................................... 14 14 E. Quasi-Contract/Restitution/Unjust Enrichment ............................................................. 16 15 F. Business and Professions Code Section 17200.............................................................. 18 16 17 G. Punitive Damages .......................................................................................................... 19 18 III. If the Demurrer is Sustained, Plaintiffs Should be Granted Leave to Amend. .............. 19 19 CONCLUSION ............................................................................................................................. 19 20 21 22 23 24 25 26 27 28 2 PLAINTIFFS’ OPPOSITION TO DEMURRER TABLE OF AUTHORITIES 1 Cases 2 Engalla v. Permanente Med. Grp., Inc., 3 (1997) 15 Cal.4th 951 ............................................................................................................... 10 4 Feresi v. The Livery, LLC, (2014) 232 Cal.App.4th 419 ..................................................................................................... 12 5 GAB Bus. Servs., Inc. v. Lindsey & Newsom Claim Servs., Inc., 6 (2000) 83 Cal.App.4th 409 ................................................................................................. 11, 12 7 Goncharov v. Uber Techs., Inc., (2018) 19 Cal.App.5th 1157 ................................................................................................. 7, 11 8 Gressley v. Williams, 9 (1961) 193 Cal.App.2d 636 ........................................................................................................ 7 10 Grieves v. Super. Ct., (1984) 157 Cal.App.3d 159 ...................................................................................................... 19 11 Hobart v. Hobart Estate Co., 12 (1945) 26 Cal.2d 412 ................................................................................................................ 12 13 In re ChinaCast Educ. Corp. Secs. Litig., (2015) 809 F.3d 471 ................................................................................................................. 11 14 Jones v. H. F. Ahmanson & Co., 15 (1969) 1 Cal.3d 93 .................................................................................................................... 12 16 Kovich v. Paseo Del Mar Homeowners’ Ass’n, (1996) 41 Cal.App.4th 863 ........................................................................................................ 14 17 Lazar v. Hertz Corp., 18 (1999) 69 Cal.App.4th 1494 ..................................................................................................... 18 19 Unilogic, Inc. v. Burroughs Corp. (1992) 10Cal.App.4th 612 ........................................................................................................ 16 20 Paulus v. Bob Lynch Ford, Inc., 21 (2006) 139 Cal.App.4th 659 ..................................................................................................... 18 22 Pigeon Point Ranch, Inc. v. Perot, (1963) 59 Cal.2d 227 ................................................................................................................ 12 23 Redfearn v. Trader Joe’s Co., 24 (2018) 20 Cal.App.5th 989 ............................................................................................... 7, 8, 19 25 Richman v. Hartley, (2014) 224 Cal.App.4th 1182 ................................................................................................... 14 26 SCC Acquisitions, Inc. v. Central Pac. Bank, 27 (2012) 207 Cal.App.4th 859 ..................................................................................................... 13 28 Stevens v. Super. Ct., (1986) 180 Cal.App.3d 605 ...................................................................................................... 13 3 PLAINTIFFS’ OPPOSITION TO DEMURRER Stevens v. Super. Ct., 1 (1986) 180 Cal.App.3d 605 ...................................................................................................... 13 2 Warner Constr. Corp. v. L.A., (1970) 2 Cal.3d 285 ............................................................................................................ 13, 14 3 Welborne v. Ryman-Carroll Found., 4 (2018) 22 Cal.App.5th 719 ................................................................................................. 17, 18 5 Whipple v. C.I.R., (1963) 373 U.S. 193 ................................................................................................................. 16 6 Woods Lumber Co. v. Moore, 7 (1920) 183 Cal. 497 .................................................................................................................. 11 8 Rules 9 Civ. Code § 1573 .......................................................................................................................... 17 10 Civ. Code § 1622 .......................................................................................................................... 14 11 Civ. Code §§ 1709 ........................................................................................................................ 13 12 Civ. Code §§ 1710 ........................................................................................................................ 13 13 Corp. Code § 17704.01 ................................................................................................................. 15 14 Corp. Code § 17704.09 ................................................................................................................. 12 15 Corp. Code § 17701.11 ................................................................................................................. 15 16 Corp. Code § 17701.13 ................................................................................................................. 15 17 Other Authorities 18 Cal. Sec’y of State, Starting a Business – Limited Liability Company (LLC), https://tinyurl.com/d88p2n83 ................................................................................................... 15 19 20 21 22 23 24 25 26 27 28 4 PLAINTIFFS’ OPPOSITION TO DEMURRER INTRODUCTION AND SUMMARY OF ARGUMENT 1 The Demurrer filed by Defendants SVRV 385 Moore, LLC, SVRV 387 Moore, LLC 2 (collectively, the “Moore Road LLCs”), Gregory J. Davis, Kevin Wolfe, Jason Justesen, Paramont 3 Capital, LLC, and Paramont Woodside, LLC (collectively, the “Paramont Defendants,” and 4 together with the Moore Road LLCs, “Demurring Defendants”) is meritless and should be 5 overruled. Plaintiffs’ First Amended Complaint (“FAC”) alleges detailed facts supporting each 6 cause of action against Demurring Defendants. Unable to identify any defects in Plaintiffs’ actual 7 complaint, Demurring Defendants instead attack a strawman of their own creation, flagrantly 8 misrepresenting (or simply ignoring) Plaintiffs’ well-pleaded allegations. By responding to a 9 complaint of its own invention, the Demurrer violates the cardinal rule requiring the defendant to 10 accept the truth of the plaintiff’s factual allegations. Given its most reasonable interpretation and 11 read in context, the FAC states claims against Demurring Defendants for fraud, breach of fiduciary 12 duty, fraudulent concealment, breach of contract, unjust enrichment, and punitive damages. The 13 Court should thus overrule the Demurrer and direct Demurring Defendants to answer the FAC. 14 BACKGROUND 15 Plaintiffs allege that they “were the initial members” of the Moore Road LLCs, which were 16 “created by Defendants Kludt, Bragg, and SVRV to purchase, improve, and sell the propert[ies] 17 located at” 385 and 387 Moore Road. (FAC ¶¶ 25–6.) Between 2017 and 2018, Plaintiffs invested 18 several hundred thousand dollars in the Moore Road LLCs. (Id. ¶ 4.) In so doing, “Plaintiffs made 19 clear that they were not investing in SVRV generally, but rather were investing in the Moore Road 20 Project specifically.” (Id. ¶ 5.) Plaintiffs made their investments pursuant to the Effective 21 Operating Agreements for the Moore Road LLCs, which listed Plaintiffs as “Passive Members” 22 and listed SVRV as the “Active Member.” 1 (Id. ¶ 55.) Bragg was the sole Manager of the Moore 23 Road LLCs from their inception in mid-2018 through May 2020. 2 (Id. ¶¶ 54, 120). 24 In November 2018, the Moore Road LLCs, via their Manager, Bragg, conspired with the 25 Paramont Defendants to create Unapproved Operating Agreements, which purported to replace 26 1 Although SVRV did not invest any capital into the Moore Road LLCs, its “ownership interest” was “derived from 27 project management.” (FAC ¶ 55.) 28 2 While Bragg was the individual Manager of the Moore Road LLCs, Kludt also had actual and apparent authority to act on behalf of the Moore Road LLCs, as he was a Managing Director of SVRV which, in turn, was the Active Member of the Moore Road LLCs. (FAC ¶¶ 23, 55, 79; see infra Argument.II.A.) 5 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 the Effective Operating Agreements and abrogate Plaintiffs’ rights in the LLCs. (Id. ¶¶ 78–80, 97– 2 9.) Davis and Justesen, the President and Vice President of Paramont Capital, respectively, were 3 personally involved with this conspiracy. (Id. ¶¶ 6, 27, 29.) Through this conspiracy, Paramont 4 Woodside, which was created and capitalized by Paramont Capital for the express purpose of 5 investing in the Moore Road Project, obtained a controlling stake in the Moore Road LLCs. (Id. 6 ¶¶ 6, 31.) The Moore Road LLCs used Plaintiffs’ invested capital to pay Paramont Capital a 7 $20,000 due diligence and legal fee, and eventually paid Paramont Capital a management fee. (Id. 8 ¶¶ 12, 79.) Defendants concealed this conspiracy from Plaintiffs for seven months. (Id. ¶ 7.) When 9 Plaintiffs finally learned of the conspiracy to eliminate their ownership interest in the Moore Road 10 LLCs, they refused to sign the Unapproved Operating Agreements, “which directly contradicted 11 the arrangements set forth in” the Effective Operating Agreements that “they had approved in 12 February 2018” and which “governed the Moore Road LLCs.” (Id. ¶¶ 10, 99.) 13 In March 2019, the Moore Road LLCs, via their Manager, Bragg, fraudulently solicited an 14 additional $200,000 in loans from Plaintiffs. (Id. ¶¶ 87–8.) Both Plaintiffs’ and Defendants’ 15 records reflected that these loans were for the Moore Road LLCs—not for SVRV. (Id.) At this 16 time, Plaintiffs still had not been told about the Unapproved Operating Agreements. (Id. ¶ 7.) In 17 March 2020, the Moore Road LLCs, again via their Manager, Bragg, fraudulently solicited 18 additional loans from Plaintiffs for the Moore Road LLCs, telling them that if they failed to make 19 these loans, the lender would foreclose on the properties and wipe out the entirety of Plaintiffs’ 20 investments. (Id. ¶¶ 11, 110–2.) 21 In May 2020, Paramont Woodside, 3 invoking terms in the Unapproved Operating 22 Agreements, assumed management of the Moore Road LLCs. (Id. ¶¶ 12, 120.) Defendants then 23 conspired to further amend the Unapproved Operating Agreements to increase the Paramont 24 Defendants’ putative return from Moore Road LLCs and to recharacterize Plaintiffs’ recent loans 25 to the Moore Road LLCs as subordinate equity contributions. (Id. ¶ 123.) After the Moore Road 26 27 3 Paramont Woodside was incorporated and capitalized by Paramont Capital for the express purpose of investing in the Moore Road Project. (FAC ¶ 31.) Davis, Wolfe, and Justesen were the officers of the Paramont LLCs. (Id. ¶¶ 27– 28 9, 31) Davis also became the individual Manager of Paramont Woodside. (Id. ¶ 12.) Like Kludt, each of the Paramont Defendants had actual and apparent authority to act on behalf of the Moore Road LLCs after taking over management via Paramont Woodside. (See supra n.2.) 6 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 LLCs sold the properties in September and October 2020, Defendants again conspired to secretly 2 amend the Unapproved Operating Agreements to secure for themselves hundreds of thousands of 3 dollars in profits from the Moore Road LLCs while leaving Plaintiffs with nothing. (Id. ¶¶ 137– 4 40.) Defendants concealed each of these actions from Plaintiffs. (Id. ¶¶ 128, 140.) 5 Plaintiffs allege that Defendants not only operated the Moore Road LLCs for their own 6 enrichment, rather than in the interests of the LLCs’ minority members (i.e., Plaintiffs), but that 7 Defendants severely mismanaged the Moore Road LLCs, which mismanagement they also 8 concealed from Plaintiffs. (E.g., id. ¶¶ 72, 86, 103.) While managing the Moore Road LLCs, Bragg 9 also siphoned funds from the LLCs for his personal enrichment and for SVRV’s other real estate 10 projects. (Id. ¶¶ 13, 24–6, 141–3.) But after taking over management of the Moore Road LLCs, 11 the Paramont Defendants, including Davis and the Paramont entities’ CFO, Wolfe, allowed Bragg 12 to continue working for the Moore Road LLCs, and to profit from them, despite recognizing his 13 incompetence and the impropriety of his involvement and enrichment. (Id. ¶¶ 12, 28, 124.) 14 LEGAL STANDARD 15 “A demurrer tests the legal sufficiency of the factual allegations in a complaint.” (Redfearn 16 v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 996.) The Court must assume “the truth of the 17 properly pleaded factual allegations, facts that reasonably can be inferred from those expressly 18 pleaded and matters of which judicial notice has been taken.” (Id.) The Court must “give the 19 complaint a reasonable interpretation, reading it as a whole and its parts in their context.” 20 (Goncharov v. Uber Techs., Inc. (2018) 19 Cal.App.5th 1157, 1165 [citation omitted].) The Court 21 must “construe the complaint ‘liberally . . . with a view to substantial justice between the parties[.]” 22 (Id. [citation omitted]) “In determining whether the complaint is sufficient as against the demurrer 23 . . . if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the 24 hands of the court against the defendants the complaint will be held good although the facts may 25 not be clearly stated.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639 [emphasis added].) 26 If a complaint is defective, “great liberality should be exercised” in granting leave to amend. 27 (Redfearn, 20 Cal.App.5th at 996; Rule of Court 3.1320(g) [presumption of right to amend].) 28 7 PLAINTIFFS’ OPPOSITION TO DEMURRER ARGUMENT 1 I. The Demurrer Should be Overruled Because It Flagrantly Misstates (or Simply 2 Ignores) Key Allegations Supporting Plaintiffs’ Claims 3 The central tenet of a demurrer is that it assumes “the truth of the properly pleaded factual 4 allegations.” (Redfearn, 20 Cal.App.5th at 996.) But the very first sentence of the Demurrer grossly 5 mischaracterizes Plaintiffs’ allegations and the central theory of their entire case. Indeed, the 6 Demurrer appears to be based on a different complaint than the one Plaintiffs filed. 7 The Demurrer begins with this assertion: “According to Plaintiffs’ First Amended 8 Complaint (“FAC”), Plaintiffs loaned money to defendant Silicon Valley Real Ventures, LLC 9 (SVRV).” (Dem. III.) But that is not what Plaintiffs allege. To the contrary, Plaintiffs expressly 10 and repeatedly allege that they invested money with, and loaned money to, the Moore Road 11 LLCs—not to SVRV—and that this money was misappropriated by all Defendants, including 12 Demurring Defendants. 4 Indeed, the gravamen of the FAC is that Plaintiffs had an ownership 13 interest in the Moore Road LLCs under the terms of the Effective Operating Agreements and that 14 Defendants, including Demurring Defendants, secretly and unlawfully misappropriated Plaintiffs’ 15 funds for their own enrichment by purporting to eliminate Plaintiffs’ ownership interest in the 16 Moore Road LLCs without authorization. 5 Indeed, Plaintiffs expressly allege that when they 17 learned of this conspiracy seven months later, they refused to ratify the purported abrogation of 18 their membership in the Moore Road LLCs. (See, e.g., FAC ¶¶ 10, 99.) 19 The Demurrer’s “Factual Background” completely ignores the host of factual allegations 20 supporting Plaintiffs’ claim to an ownership interest in the Moore Road LLCs. Indeed, the 21 Demurrer’s “Factual Background” does not even mention the Effective Operating Agreements. 22 Instead, it discusses only the Unapproved Operating Agreements, which Plaintiffs expressly allege 23 were never operative because they purported to abrogate Plaintiffs’ interests in the Moore Road 24 25 4 See, e.g., FAC ¶ 5 [“Plaintiffs made clear that they were not investing in SVRV generally, but rather were investing in the Moore Road Project specifically.”]; id. [Plaintiffs “understood that they would be members of [the Moore Road] 26 LLCs.”]; id. ¶¶ 25–6 [“Plaintiffs were the initial members of” the Moore Road LLCs]; id. ¶ 54 [Plaintiffs were “the majority owners with SVRV” of the Moore Road LLCs]; id ¶¶ 55, 67 [“Plaintiffs [were] the sole Passive Members of the [Moore Road] LLCs”]; id. ¶ 88 [Plaintiffs loaned money for “SVRV/Moore Road”]; id. ¶ 110–12 [Plaintiffs 27 loaned additional money to the Moore Road LLCs]; ¶ 126 [referring to “smaller investors in the Moore Road LLCs, including Plaintiffs”]. 28 5 See, e.g., FAC ¶ 6 [Defendants conspired to “unlawfully amend the operating agreements and purport to remove Plaintiffs from membership in the [Moore Road] LLCs.”]; id. ¶¶ 78–80; id. ¶¶ 97–9. 8 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 LLCs without Plaintiffs’ unanimous written authorization. 6 The Demurrer further asserts that “[n]o 2 specific conduct is alleged with regard to the Moore Road LLCs.” (Dem. 1.) But that is not a fair 3 or reasonable reading of the FAC. Plaintiffs expressly allege that Bragg was the Manager of the 4 Moore Road LLCs (FAC ¶ 54), that SVRV was the Active Member of the Moore Road LLCs, (id. 5 ¶ 55), that Bragg and Kludt were the Managing Directors of SVRV (id. ¶¶ 22–3), that Bragg 6 operated SVRV as his alter ego (id. ¶ 24), and that the Moore Road LLCs were also Bragg’s alter 7 egos (id. ¶¶ 25–6, 141–2). Plaintiffs specifically allege that misrepresentations about, and 8 misappropriations of, their contributions to the Moore Road LLCs were made by Bragg, Kludt, 9 and SVRV—all of whom acted on behalf of the Moore Road LLCs at various times—and by the 10 Moore Road LLCs themselves. (See, e.g., id. ¶¶ 166, 168, 170, 172, 185, 187, 189, 191, 212–5, 11 255, 257.) Plaintiffs also allege that the Paramont Defendants ultimately assumed management of 12 the Moore Road LLCs and that the once in charge they (a) forced Bragg to amend the Unapproved 13 Operating Agreements to give themselves an even larger return on their investment, (b) sold the 14 properties, and (c) distributed the proceeds of those sales exclusively to themselves and to Bragg 15 (in the form of a sales commission) while returning no capital to Plaintiffs in violation of the 16 Effective Operating Agreements and the terms of Plaintiffs’ loans. (Id. ¶¶ 12, 126, 130–4, 137–9.) 17 Contrary to the Demurrer’s assertion, Plaintiffs also allege numerous “facts establishing a[] 18 relationship” with each of the Paramont Defendants. 7 (Dem. 1.) 19 6 Compare Dem. 1 [discussing the Unapproved Operating Agreements, and citing FAC ¶¶ 78–9], with FAC ¶¶ 78–9 20 [“[T]he SVRV Defendants and the Paramont Defendants unlawfully purported to amend the Effective Operating Agreements for the Moore Road LLCs . . . without Plaintiffs’ knowledge or consent,” even though “by this time Kludt 21 and Bragg had been operating the Moore Road LLCs for approximately five months pursuant to the terms of the Effective Operating Agreements”], id. ¶ 80 [“Plaintiffs never would have consented to such wholesale amendments 22 to the Effective Operating Agreements, which is likely why Defendants kept the existence of the Unapproved Operating Agreements hidden from Plaintiffs for more than seven months.”], and id. ¶ 83 [“[T]he Effective Operating Agreements[ ] required unanimous written consent from Plaintiffs” to be amended.]. 23 7 Among other things, Plaintiffs allege a conspiracy by Davis, Justesen, and Paramont Capital “to unlawfully amend 24 the [Effective] [O]perating [A]greements and purport to remove Plaintiffs from membership in the LLCs” despite receiving documents during due diligence putting them on notice that the LLCs were already governed by the Effective 25 Operating Agreements and that any revisions to those agreements required Plaintiffs’ authorization. (FAC ¶¶ 6, 76.) Plaintiffs further allege that Paramont Woodside, itself managed by Davis, took over management of the Moore Road 26 LLCs, and in that capacity unlawfully distributed the profits from the LLCs to Defendants while leaving Plaintiffs with nothing. (Id. ¶¶ 12, 27, 137.) Plaintiffs further allege that Davis and Wolfe forced Bragg to amend the Unapproved 27 Operating Agreements, purporting to increase Paramont Woodside’s “preferred return” at Plaintiffs’ expense. (Id. ¶ 12.) Plaintiffs allege that Davis and Wolfe paid Bragg an improper broker’s fee from the Moore Road Project, again 28 at Plaintiffs’ expense. (Id.) Plaintiffs allege that at relevant times, Wolfe was “the primary individual in charge of the finances” for the Moore Road LLCs, and the CFO of the Paramont LLCs that took control over the Moore Road LLCs. 9 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Simply put, Demurring Defendants are attacking a complaint of their own invention and 2 ignoring (or creatively revising) the myriad factual allegations that support Plaintiffs’ claims. For 3 this reason alone, the Demurrer should be overruled. 4 II. The Demurrer Should be Overruled Because Plaintiffs Have Properly Pleaded Each of their Claims. 5 A. Fraud/Intentional Misrepresentation/False Promise 6 The elements of fraud are “(a) misrepresentation (false representation, concealment, or 7 nondisclosure); (b) knowledge or falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce 8 reliance; (d) justifiable reliance; and (e) resulting damage.” (Engalla v. Permanente Med. Grp., 9 Inc. (1997) 15 Cal.4th 951, 974; see also id. at 973–74 [“promissory fraud” is a “subspecies of 10 fraud and deceit” in which “a promise is made without” the intention to perform the promise].) 11 Plaintiffs have adequately pleaded each of these elements against the Moore Road LLCs. 12 Among other allegations, Plaintiffs allege that the Moore Road LLCs—acting through their 13 Manager, Bragg—falsely and knowingly told Robert (“Bob”) Arntsen that he would receive a 14 substantial return from his investment in the SVRV Land project (which was governed by the same 15 management team) that would be rolled over into the Moore Road LLCs. (FAC ¶¶ 37–8, 68.) 16 Plaintiffs also allege that the Moore Road LLCs, again speaking through Bragg—falsely and 17 knowingly represented in March 2019 that Plaintiffs would be repaid promptly with 12% interest 18 if they provided $200,000 in short-term loans. (Id. ¶¶ 87–8). Bragg, speaking on behalf of the 19 Moore Road LLCs, also represented in March 2020 that Plaintiffs would be repaid with 12% 20 interest if they extended additional loans to prevent the bank from foreclosing on the properties, 21 and that their loans would have priority over all equity investments. (Id. ¶¶ 110–2.) Plaintiffs 22 allege that the Moore Road LLCs intended that Plaintiffs would rely, and that Plaintiffs did in fact 23 rely, on these misrepresentations, causing them hundreds of thousands of dollars in damages. (Id. 24 ¶¶ 1, 12, 167, 169, 171, 186, 188, 190.) 25 Indeed, the Demurrer admits that Plaintiffs allege numerous examples of false statements 26 27 (Id. ¶ 28.) Plaintiffs allege that Justesen was the Vice President of Paramont Capital, which incorporated and capitalized Paramont Woodside for the express purpose of investing in the Moore Road Project, and which took an 28 improper management fee from the Moore Road Project. (Id. ¶¶ 29, 132.) And Plaintiffs allege that each of the Paramont Defendants took a hefty profit from the Moore Road LLCs and was unjustly enriched at Plaintiffs’ expense. (Id. ¶¶ 132–34, 137.) 10 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 with particularity, including who spoke, to whom, when the statements were made, and what was 2 said. (Dem. 4.) The Demurrer recognizes that these false statements were uttered by Bragg and 3 Kludt (id.), but it ignores Plaintiffs’ express allegations that (a) Bragg was the Manager of the 4 Moore Road LLCs (FAC ¶¶ 54, 120), and (b) that Bragg used the Moore Road LLCs as his alter 5 egos and moved funds indiscriminately between the Moore Road LLCs and SVRV, which he 6 likewise operated as his alter ego. 8 (FAC ¶¶ 22–3, 25–6, 141–2; see also supra n.2 [Kludt had 7 authority to act on behalf of the Moore Road LLCs].) The only “reasonable interpretation” of the 8 FAC, “reading it as a whole and its parts in their context,” is that Bragg is alleged to have spoken 9 on behalf of the Moore Road LLCs when he made various misrepresentations to Plaintiffs to 10 induce them to contribute to the Moore Road LLCs. (Goncharov, 19 Cal.App.5th at 1165.) Indeed, 11 the Demurrer does not contest that Bragg had actual and apparent authority over the Moore Road 12 LLCs—and it cannot. 9 The FAC thus unmistakably alleges that the Moore Road LLCs, represented 13 by Bragg, their Manager, made knowing, material misrepresentations to Plaintiffs with the intent 14 that Plaintiffs would rely on those misrepresentations; that Plaintiffs did in fact rely on those 15 misrepresentations; and that Plaintiffs were damaged thereby. 16 Because Plaintiffs allege that Bragg had authority to speak on behalf of the Moore Road 17 LLCs and identify exactly which false statements he made on behalf of the Moore Road LLCs, 18 Plaintiffs have stated a claim against the Moore Road LLCs for fraud. 19 B. Breach of Fiduciary Duty 20 “The elements of a cause of action for breach of fiduciary duty are the existence of a 21 fiduciary relationship, its breach, and damage proximately caused by that breach.” (Knox v. Dean 22 (2012) 205 Cal.App.4th 417 [citation omitted].) Fraudulent intent is not required. (Civ. Code 23 24 8 The Demurrer contends that the FAC lacks factual allegations to support the alter ego allegation (Dem. 5 n.1), but the FAC specifically alleges that Bragg commingled corporate funds (including those of the Moore Road LLCs) and 25 siphoned investor funds from the LLCs for his personal enrichment (id. ¶¶ 25–6, 141–2). Bragg’s cavalier treatment of the governing Effective Operating Agreements and complete disregard of corporate formalities further confirms 26 that he controlled the Moore Road LLCs as his alter ego until Paramont Woodside assumed control. (Id.) 9 See, e.g., GAB Bus. Servs., Inc. v. Lindsey & Newsom Claim Servs., Inc. (2000) 83 Cal.App.4th 409, 417 [corporate 27 officer can bind corporation in dealing with third parties when officer has actual or apparent authority to act on behalf of corporation]; see also Woods Lumber Co. v. Moore (1920) 183 Cal. 497 [because contract was signed by manager, 28 corporation was bound by it and plaintiff did not have to prove the contract was authorized]; In re ChinaCast Educ. Corp. Secs. Litig. (9th Cir. 2015) 809 F.3d 471, 472–73 [corporate officer’s fraudulent misrepresentations, including scienter, imputed to corporation even when officer was “looting” from corporation and therefore was adverse to it]. 11 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 § 1573.) As Demurring Defendants acknowledge, managers and controlling members of LLCs 2 owe “fiduciary duties to the entity and other members.” (Dem. 10 [citing Corp. Code § 17704.09; 3 Feresi v. The Livery, LLC (2014) 232 Cal.App.4th 419, 425].) This includes duties of loyalty, care, 4 and good faith and fair dealing. (Corp. Code § 11704.09(a)–(b).) Managers are “obligated to act 5 with the utmost loyalty and in the highest good faith when dealing with any member of the LLC,” 6 and “may not obtain any advantage over . . . any [] member of the LLC . . . by even the slightest 7 misrepresentation or concealment.” (Feresi, 232 Cal.App.4th at 425.) An “officer of a corporation” 8 also “acts in a fiduciary capacity.” (Pigeon Point Ranch, Inc. v. Perot (1963) 59 Cal.2d 227, 233.) 9 Plaintiffs adequately allege each of the elements for breach of fiduciary duty. 10 Plaintiffs allege that they were passive members in the Moore Road LLCs. (FAC ¶ 55.) 11 They further allege that not only did the Paramont Defendants obtain a majority interest in the 12 Moore Road LLCs in November 2018 by virtue of their $2,000,000 investment (id. ¶ 6), but that 13 in May 2020 they assumed formal management of the Moore Road LLCs (id. ¶ 120). Demurring 14 Defendants thus owed heightened fiduciary duties to Plaintiffs and had an obligation “not [to] use 15 their power to control corporate activities to benefit themselves alone or in a manner detrimental 16 to the minority.” 10 (Jones, 1 Cal.3d at 108.) 17 Plaintiffs expressly allege that Demurring Defendants violated their duties of loyalty, care, 18 and good faith and fair dealing by numerous unlawful acts. For example, Plaintiffs allege that 19 “Paramont Woodside—acting as both Manager and Majority Shareholder”—acted to benefit “its 20 own interests to the detriment of smaller investors in the Moore Road LLCs, including Plaintiffs,” 21 by misappropriating hundreds of thousands of dollars that belonged to Plaintiffs. (FAC ¶¶ 6, 12, 22 30, 125–6, 137.) Plaintiffs further allege that Paramont Capital, which incorporated and capitalized 23 Paramont Woodside, itself took an unauthorized management fee from the Moore Road LLCs at 24 Plaintiffs’ expense. (Id. ¶¶ 12, 132, 137.) Plaintiffs also allege that Davis, Wolfe, and Justesen 25 26 10 See, e.g., GAB Bus. Servs., 83 Cal.App.4th at 419 n.1 [defendants “fail[ed] to identify any case in which a corporate officer was found not to owe a fiduciary duty to the corporation”]; Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412 27 [the rule that “denies the existence of any fiduciary duty in the case of an officer having knowledge of special facts that enable him to profit at the expense of a shareholder . . . is not in accord with accepted principles of justice and 28 must be rejected”]; Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108 [“[M]ajority shareholders, either singly or acting in concert to accomplish a joint purpose, have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner.”]. 12 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 were the officers of Paramont Capital and profited from both this management fee and from its 2 stake in Paramont Woodside, again at Plaintiffs’ expense. 11 (Id. ¶¶ 27–9, 233, 263.) Plaintiffs have 3 thus adequately pleaded a claim for breach of fiduciary duty against Demurring Defendants. 4 C. Fraudulent Concealment 5 “Where failure to disclose a material fact is calculated to induce a false belief, the 6 distinction between concealment and affirmative misrepresentation is tenuous. Both are 7 fraudulent. An active concealment has the same force and effect as a representation which is 8 positive in form.” (Stevens v. Super. Ct. (1986) 180 Cal.App.3d 605, 609.) California law 9 recognizes multiple theories of fraudulent concealment. (See Civ. Code §§ 1709–10.) Even “[i]n 10 transactions which do not involve fiduciary or confidential relations, a cause of action for non- 11 disclosure of material facts may arise” where “the facts are known or accessible only to defendant, 12 and defendant knows they are not known to or reasonably discoverable by the plaintiff.” (Warner 13 Constr. Corp. v. L.A. (1970) 2 Cal.3d 285, 294.) 12 Plaintiffs adequately allege fraudulent 14 concealment against each of Demurring Defendants under multiple theories. 15 Among other material facts, Plaintiffs allege that Demurring Defendants concealed from 16 them (1) the existence of the Unapproved Operating Agreements (and amendments thereto) that 17 purported to abrogate Plaintiffs’ ownership interests in the Moore Road LLCs (e.g., FAC ¶¶ 6–7, 18 12, 78–80); (2) Paramont Woodside’s decision to oust Bragg and assume management of the LLCs 19 (id. ¶ 149); (3) the precarious state of the Moore Road Project long before it sold (e.g., id. ¶¶ 70, 20 72); (4) rampant management failures, including the failure to keep proper books and records (e.g., 21 id. ¶¶ 86, 103); (5) the real purposes for which Plaintiffs’ loans were solicited (id. ¶¶ 88, 112); (6) 22 numerous management decisions that were contrary to the interests of minority investors like 23 Plaintiffs, but instead for the benefit of management and insiders (e.g., id. ¶¶ 12, 112, 118, 124– 24 25 11 Plaintiffs further allege that Wolfe acted as the CFO of the Paramont entities and at relevant times, “was the primary individual in charge of finances” for the Moore Road LLCs. (Id. ¶¶ 28, 103.) Plaintiffs also allege that Paramont 26 Defendants breached their duty of care in their management of the LLCs, including by letting Bragg continue to work on the Moore Road Project long after they were aware of his incompetence. (See, e.g., FAC ¶¶ 12, 70–3, 124.) Plaintiffs allege that these breaches damaged them in the amount of hundreds of thousands of dollars. (Id. ¶¶ 12, 137.) 27 12 See also SCC Acquisitions, Inc. v. Central Pac. Bank (2012) 207 Cal.App.4th 859, 860 [“A duty to speak may arise 28 in four ways: it may be directly imposed by statute or other prescriptive law; it may be voluntarily assumed by contractual undertaking; it may arise as an incident of a relationship between the defendant and the plaintiff; and it may arise as a result of other conduct by the defendant that makes it wrongful for him to remain silent.”]. 13 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 8); and (7) the hefty profits that Demurring Defendants reaped from the LLCs while Plaintiffs were 2 wiped out (id. ¶¶ 137–40.). Demurring Defendants were obligated to disclose these facts to 3 Plaintiffs for multiple reasons, including because they made “representations but [did] not disclose 4 facts which materially qualif[ied] the facts disclosed”; “the facts [were] known or accessible only 5 to” Demurring Defendants and they knew “they [were] not known to or reasonably discoverable” 6 by Plaintiffs; they “actively conceal[ed] discovery” of these facts from Plaintiffs; and they owed 7 Plaintiffs fiduciary duties. (Warner Constr. Co., 2 Cal. 3d at 294.) 8 The Demurrer contends that Plaintiffs fail to state a fraudulent concealment claim because 9 they fail to allege a fiduciary relationship. (Dem. 8.) But the FAC alleges numerous facts 10 supporting the existence of a fiduciary relationship (see supra Argument.II.B), and Plaintiffs allege 11 that Demurring Defendants exclusively possessed material facts that they actively concealed from 12 Plaintiffs, which independently creates a duty to disclose (see Warner Constr. Co., 2 Cal. 3d at 13 294; Kovich v. Paseo Del Mar Homowners’ Ass’n (1996) 41 Cal.App.4th 863, 866 [duty to 14 disclose may arise even “without a confidential or fiduciary relationship where the defendant . . . 15 has knowledge of material facts which are not accessible to the plaintiff”]). Demurring Defendants 16 also contend that Plaintiffs fail to make “any specific allegations of fraud committed by demurring 17 Defendants.” (Dem. 9.) That argument lacks merit because, as explained above, the FAC alleges 18 with particularity facts showing that Demurring Defendants committed fraud (and fraudulent 19 concealment). (See supra Argument.I.) 20 D. Breach of Contract and Oral Contract 21 “To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the 22 contract, (2) the plaintiff’s performance of the contract or excuse for nonperformance, (3) the 23 defendant’s breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 24 Cal.App.4th 1182, 1186.) “All contracts may be oral, except such as are specifically required by 25 statute to be in writing.” (Civ. Code § 1622.) Plaintiffs have adequately pleaded each element. 26 Plaintiffs allege that the Effective Operating Agreements governed the Moore Road LLCs 27 from the moment they were registered with the Secretary of State, and that Plaintiffs were members 28 of the Moore Road LLCs from their inception because they invested hundreds of thousands of 14 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 dollars in the Moore Road LLCs pursuant to the terms of the Effective Operating Agreements. 2 (FAC ¶¶ 59, 61–62, 64–65, 67.) Plaintiffs allege that the Effective Operating Agreements required 3 unanimous written consent to be amended. (Id. ¶ 83.) Plaintiffs allege that all other investments in 4 the Moore Road LLCs—including the Paramont Defendants’ investment—were governed by the 5 terms of the Effective Operating Agreements. 13 The Effective Operating Agreements “stated that 6 net profits would be distributed first to Passive Members, and after they had recovered their capital 7 contributions, then to all Members in proportion to their Membership Interests,” after debts were 8 paid off. (Id. ¶¶ 5, 55.) The Moore Road LLCs were thus contractually obligated to distribute the 9 proceeds on a pro rata basis to all Passive Members after the properties were sold. Plaintiffs further 10 allege that they orally contracted with the Moore Road LLCs in March 2019 and April 2020, 11 extending loans in exchange for a promised 12% return that would take priority over equity 12 distributions. (Id. ¶¶ 8, 11, 87–8, 110–2.) Plaintiffs also allege that the Moore Road LLCs, 13 managed by the Paramont Defendants, breached each of these contracts. (Id. ¶¶ 137, 241–3, 257.) 14 The FAC alleges that Demurring Defendants breached the terms of the Effective Operating 15 Agreements by purporting to amend those agreements without Plaintiffs’ unanimous written 16 consent. (Id. ¶¶ 78–83, 241.) Demurring Defendants again breached the agreements after the 17 properties were sold by distributing all profits to themselves (including via management fees) 18 instead of first repaying the loans (with interest) and then distributing net profits in proportion to 19 the members’ interests. (Id. ¶¶ 12, 137, 242–3.) Plaintiffs thereby suffered hundreds of thousands 20 of dollars in damages. (Id.) Thus, contrary to Demurring Defendants’ contention that Plaintiffs’ 21 breach-of-contract claim is “fatally uncertain” (Dem. 10), Plaintiffs have squarely alleged the 22 terms of the contracts, Plaintiffs’ performance, the numerous breaches, and Plaintiffs’ damages. 23 As to the oral contracts, the Demurrer contends that Plaintiffs fail to allege facts 24 13 The allegation that the Moore Road LLCs were governed by the Effective Operating Agreements from their 25 inception follows from California law, which requires all LLCs to have an operating agreement. (See Corp. Code § 17701.11; id. § 17704.01(b); see also Cal. Sec’y of State, Starting a Business – Limited Liability Company (LLC), 26 https://tinyurl.com/d88p2n83 [“[A]n operating agreement among the members as to the affairs of the LLC and the conduct of its business is required. The LLC does not file the operating agreement with the Secretary of State but 27 maintains it at the office where the LLC’s records are kept.”] [emphasis added]; Corp. Code § 17701.13(d)(5) [“Each limited liability shall maintain in writing . . . [a] copy of the limited liability company’s operating agreement, if in 28 writing, and any amendments thereto.”].) The Moore Road LLCs could not have operated for 4–5 months without an operating agreement, and the only operating agreements that had been drafted and approved by the time the LLCs were registered with the Secretary of State were the Effective Operating Agreements. (FAC ¶¶ 67, 79.) 15 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 “supporting a meeting of the minds between them and the Moore Road LLCs,” including “when 2 [the] alleged oral agreement was reached” and “who [] entered into the oral agreement(s) as to the 3 Moore Road LLCs.” (Dem. 12.) Nonsense. Plaintiffs allege the precise date (March 19, 2019) on 4 which Bragg—acting as Manager of the Moore Road LLCs (see FAC ¶ 120)—solicited $200,000 5 in short-term loans for the Moore Road LLCs for the promise of a prompt 12% return. (FAC ¶¶ 8, 6 87.) Plaintiffs also allege that they made a second set of loans to the LLCs on a precise date (April 7 1, 2020) after Bragg—still acting as Manager of the Moore Road LLCs—promised them 12% 8 interest. (Id. ¶¶ 110–2.) The FAC alleges that the Moore Road LLCs breached each of the oral 9 contracts by failing to repay Plaintiffs as promised, including after the Paramont Defendants took 10 control of the LLCs and sold the properties. (Id. ¶¶ 12, 126, 137, 257.) 11 The Demurrer also contends that Plaintiffs’ loans are “invalid” under Civil Code section 12 1624(a)(7). (Dem. 12.) That argument is frivolous. First, section 1624(a)(7) applies only to loans 13 “greater than one hundred thousand dollars,” and Plaintiffs allege that each of their loans was in 14 the amount of $100,000 or less. (FAC ¶¶ 88, 111.) Second, the FAC does not suggest that 15 “Plaintiffs were in the business of loaning money,” as the Demurrer argues. (Dem. 12.) To begin 16 with, Plaintiffs did not make “multiple previous loans”—rather, Plaintiffs allege that Bob and the 17 Partnership each made two total loans, and Mary and the Custodianship each made a single loan. 18 (FAC ¶¶ 88, 111.) The Demurrer fails to cite any authority for the proposition that making one 19 “previous loan” puts an individual “in the business of loaning money.” 14 20 E. Quasi-Contract/Restitution/Unjust Enrichment 21 “In general, a person who has been unjustly enriched at the expense of another is required 22 to make restitution to the other. Ordinarily the benefit to the one and the loss to the other are co- 23 extensive, and the result . . . is to compel the one to surrender the benefit which he has received 24 and thereby to make restitution to the other for the loss which he has suffered.” (Unilogic, Inc. v. 25 Burroughs Corp. (1992) 10 Cal.App.4th 612, 627–28 [internal citations omitted].) Similarly, 26 quasi-contract “is an obligation . . . created by the law without regard to the intention of the parties, 27 and is designed to restore the aggrieved party to [its] former position by return of the thing or its 28 14 See, e.g., Whipple v. C.I.R. (1963) 373 U.S. 193, 203–04 [petitioner was “not engaged in the business of money lending” even though he incorporated numerous entities and repeatedly extended credit over several years].