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SUPERIOR COURT OF CALIFORNIA,
COUNTY OF SACRAMENTO
GORDON D SCHABER COURTHOUSE
MINUTE ORDER
DATE: 09/28/2018 TIME: 04:11:00 PM DEPT: 54
JUDICIAL OFFICER PRESIDING: Christopher Krueger
CLERK: G. Toda
REPORTER/ERM:
BAILIFF/COURT ATTENDANT:
CASE NO: 34-2018-00229212-CU-FR-GDS CASE INIT.DATE: 03/16/2018
CASE TITLE: Somers vs. Longoria
CASE CATEGORY: Civil - Unlimited
EVENT TYPE: Hearing on Demurrer - Civil Law and Motion - Demurrer/JOP
APPEARANCES
Nature of Proceeding: Ruling on Submitted Matter- (Hearing on Demurrer to Complaint) – Taken
Under Submission 9/27/18
TENTATIVE RULING
*** If oral argument is requested, the parties must at the time oral argument is requested notify
the clerk and opposing counsel of the specific causes of action that will be addressed at the
hearing. Counsel are also reminded that pursuant to local rules, only limited oral argument is
permitted on law and motion matters. ***
Defendant Longoria's demurrer to the complaint is SUSTAINED IN PART and OVERRULED IN PART,
with leave to amend, as follows.
Defendant's counsel failed to comply with CRC Rule 3.1110(b)(3)-(4).
Defendant's counsel is reminded that the meet-and-confer requirements of Code of Civil Procedure
§430.41 are not optional and s/he must comply with the statutory meet-and-confer requirements before
filing a demurrer including but not limited to "identify[ing] all of the specific causes of action that it
believes are subject to demurrer and identify[ing] with legal support the basis of the deficiencies."
(Underline added for emphasis.)
Factual Background
This case presents a business dispute relating to LC Therapeutics, Inc. ("LCT"), an S corporation.
According to plaintiff, he and defendant were friends and business associates years before they became
business partners in LCT, a business founded by defendant in 2013. Plaintiff asserts he invested in LCT
in reliance on a number of promises by defendant including that if plaintiff became a shareholder,
defendant would convert LCT from an S corporation to an LLC; defendant would use equity as
consideration for additional cash infusions, plaintiff could purchase as much equity as he wanted,
plaintiff would have equal say in all decision-making and defendant would devote his time and energy to
making LCT successful but it is alleged these representations were false. Thus, despite plaintiff's
DATE: 09/28/2018 MINUTE ORDER Page 1
DEPT: 54 Calendar No.
CASE TITLE: Somers vs. Longoria CASE NO: 34-2018-00229212-CU-FR-GDS
substantial financial contributions, LCT is collapsing.
The complaint purports to assert causes of action for "Fraud," Negligent Misrepresentation, Unjust
Enrichment and Breach of Fiduciary Duty.
Defendant demurs to each cause of action on various grounds noted below. Plaintiff opposes.
Request for Judicial Notice
Defendant's request for judicial notice of his voluntary petition for dissolution of LCT is granted, although
its relevance remains unclear.
Analysis
"Fraud." Defendant contends this claim fails because the alleged misrepresentations do not relate to
past or existing material facts and because mere opinions about future events are not actionable on a
theory of fraud. Defendant adds that the complaint fails to include the required specificity relating to who
represented what to whom, how it was communicated and when, as well as the speaker's authority to
bind a corporate defendant. Defendant further asserts that this cause of action fails since plaintiff did not
rely on the alleged misrepresentations nor could he reasonably do so, having all the information
available to him and the ability/authority to control the operations of LCT.
The court will sustain the demurrer to the first cause of action for "Fraud" since it is unclear whether it
purports to assert a claim for intentional misrepresentation, false promise or concealment, each of which
is a distinct theory of fraud with its own different prima facie elements. Additionally, the complaint does
not meet the heightened pleading standard for fraud including who represented or promised what to
whom, how it was communicated and when (and/or who concealed what from and when).
However, defendant's contentions about mere opinions regarding future events are not actionable and
plaintiff needing to specifically allege the speaker's authority to bind a corporate defendant are of no
consequence here inasmuch the complaint alleges specific promises/representations about future
events ostensibly under defendant's control and there is no corporate defendant named in this action.
The court also rejects defendant's suggestion that the complaint has not and cannot allege the element
of reliance; this element is adequately pled and not subject to demurrer here.
Negligent Misrepresentation. Defendant demurs to this cause of action on essentially the same
grounds as the prior cause of action.
The demurrer to this cause of action will be sustained. First, contrary to what the specific allegations
suggest, a claim for negligent misrepresentation is not a claim based on negligence which requires the
pleading of the elements of duty, breach, causation and damages but rather, negligent
misrepresentation is a species of fraud. (See, e.g., Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370,
407.) Second, as this cause of action merely incorporates by reference the preceding allegations, it also
fails to specifically plead who represented what to whom, how it was communicated and when.
On the other hand, the court again rejects defendant's suggestions that (1) the alleged
representations/promises are not actionable as mere opinions regarding future events and (2) the
complaint does not allege the element of reasonable reliance.
Unjust Enrichment. Defendant challenges this cause of action on the grounds it is fatally uncertain and
unintelligible, it sounds in contract although no contract between the parties has been alleged and it fails
to identify how defendant was unjustly enriched.
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CASE TITLE: Somers vs. Longoria CASE NO: 34-2018-00229212-CU-FR-GDS
The court agrees that this cause of action fails to plead facts which demonstrate how defendant was
unjustly enriched so as to warrant restitution but rejects defendant's argument that a contract must be
alleged in order to state a claim for unjust enrichment. After all, unjust enrichment is a general principle
underlying various legal doctrines and remedies which is essentially synonymous with restitution (see,
e.g., Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793 (citing Dinosaur
Development, Inc. v. White (1989) 216 Cal. App.3d 1310, 1315); Hirsch v. Bank of America (2003) 107
Cal.App.4th 708, 721) and restitution is clearly available in California when there is no underlying
contract (see, e.g., Russell City Energy Co. LLC. v. City of Hayward (2017) 14 Cal.App.5th 54, 70 (fn.8
[party can assert claim for unjust enrichment by alleging a contract was void or rescinded].)
Breach of Fiduciary Duty. According to defendant, no fiduciary duty exists between equal
shareholders in a corporation even where they also serve as officers and directors since they are equal
to one another and neither is in a superior position to exert unique influence over the other. Defendant
maintains he was never in a position superior to plaintiff who, in reality, had the authority to control the
operations of LCT.
The demurrer to this final cause of action is overruled because it specifically alleges that defendant, in
addition to being an equal shareholder, was the CEO of LCT and because California law recognizes that
officers and directors owe fiduciary duties to shareholders (see, e.g., Jones v. H.F. Ahmanson (1969) 1
Cal.3d 93, 109-111). The court need not consider the other bases cited in the opposition on which a
fiduciary duty could be found since they were not actually alleged in the complaint. (To the extent
plaintiff now desires to do so, he may file and serve a noticed motion to amend.)
Disposition
As explained above, defendant's demurrer is sustained in part and overruled in part.
As this is the first challenge to the complaint, leave to amend is granted. Plaintiff may file and serve an
amended complaint no later than 10/9/2018. Although not required by court rule or statute, plaintiff
is directed to present a copy of this order when the amended complaint is presented for filing.
Defendant to respond within 30 days if the amended complaint is personally served, 35 days if served by
mail.
This minute order is effective immediately. No formal order or other notice is required. (Code Civ. Proc.
§1019.5; CRC Rule 3.1312.)
COURT RULING
The matter was argued and submitted.
The matter was taken under submission.
SUBMITTED MATTER RULING
After taking this matter under submission, the court hereby AFFIRMS the tentative ruling with the
following addition.
At oral argument, defendant Longoria for the first time cited Miles, Inc. v. Scripps Clinic & Research
Foundation (1993 SD CA) 810 F.Supp. 1091 for the proposition that plaintiff in his capacity as a
shareholder cannot sue directly defendant as an officer of LCT for breach of fiduciary duty but instead
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CASE TITLE: Somers vs. Longoria CASE NO: 34-2018-00229212-CU-FR-GDS
must bring a derivative suit on behalf of LCT. Defendant's reliance on this federal district court decision
is unavailing here since this argument about plaintiff's standing to sue for breach of fiduciary duty was
not raised in the moving papers, since Miles is not binding precedent and since the cited portion of the
decision is dicta given that the court had already determined (1) the plaintiff's breach of fiduciary duty
claim was dependent on a separate conversion claim which was properly dismissed for other reasons
and (2) the two individual defendants sued for breach of fiduciary duty, one an employee and the other a
consultant, simply owed no fiduciary duty to the plaintiff shareholder.
This minute order is effective immediately. No formal order or other notice is required. (Code Civ. Proc.
§1019.5; CRC Rule 3.1312.)
DATE: 09/28/2018 MINUTE ORDER Page 4
DEPT: 54 Calendar No.
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SUPERIOR COURT OF CALIFORNIA, COUNTY OF SACRAMENTO GORDON D SCHABER COURTHOUSE MINUTE ORDER DATE: 09/28/2018 TIME: 04:11:00 PM DEPT: 54 JUDICIAL OFFICER PRESIDING: Christopher Krueger CLERK: G. Toda REPORTER/ERM: BAILIFF/COURT ATTENDANT: CASE NO: 34-2018-00229212-CU-FR-GDS CASE INIT.DATE: 03/16/2018 CASE TITLE: Somers vs. Longoria CASE CATEGORY: Civil - Unlimited EVENT TYPE: Hearing on Demurrer - Civil Law and Motion - Demurrer/JOP APPEARANCES Nature of Proceeding: Ruling on Submitted Matter- (Hearing on Demurrer to Complaint) – Taken Under Submission 9/27/18 TENTATIVE RULING *** If oral argument is requested, the parties must at the time oral argument is requested notify the clerk and opposing counsel of the specific causes of action that will be addressed at the hearing. Counsel are also reminded that pursuant to local rules, only limited oral argument is permitted on law and motion matters. *** Defendant Longoria's demurrer to the complaint is SUSTAINED IN PART and OVERRULED IN PART, with leave to amend, as follows. Defendant's counsel failed to comply with CRC Rule 3.1110(b)(3)-(4). Defendant's counsel is reminded that the meet-and-confer requirements of Code of Civil Procedure §430.41 are not optional and s/he must comply with the statutory meet-and-confer requirements before filing a demurrer including but not limited to "identify[ing] all of the specific causes of action that it believes are subject to demurrer and identify[ing] with legal support the basis of the deficiencies." (Underline added for emphasis.) Factual Background This case presents a business dispute relating to LC Therapeutics, Inc. ("LCT"), an S corporation. According to plaintiff, he and defendant were friends and business associates years before they became business partners in LCT, a business founded by defendant in 2013. Plaintiff asserts he invested in LCT in reliance on a number of promises by defendant including that if plaintiff became a shareholder, defendant would convert LCT from an S corporation to an LLC; defendant would use equity as consideration for additional cash infusions, plaintiff could purchase as much equity as he wanted, plaintiff would have equal say in all decision-making and defendant would devote his time and energy to making LCT successful but it is alleged these representations were false. Thus, despite plaintiff's DATE: 09/28/2018 MINUTE ORDER Page 1 DEPT: 54 Calendar No. CASE TITLE: Somers vs. Longoria CASE NO: 34-2018-00229212-CU-FR-GDS substantial financial contributions, LCT is collapsing. The complaint purports to assert causes of action for "Fraud," Negligent Misrepresentation, Unjust Enrichment and Breach of Fiduciary Duty. Defendant demurs to each cause of action on various grounds noted below. Plaintiff opposes. Request for Judicial Notice Defendant's request for judicial notice of his voluntary petition for dissolution of LCT is granted, although its relevance remains unclear. Analysis "Fraud." Defendant contends this claim fails because the alleged misrepresentations do not relate to past or existing material facts and because mere opinions about future events are not actionable on a theory of fraud. Defendant adds that the complaint fails to include the required specificity relating to who represented what to whom, how it was communicated and when, as well as the speaker's authority to bind a corporate defendant. Defendant further asserts that this cause of action fails since plaintiff did not rely on the alleged misrepresentations nor could he reasonably do so, having all the information available to him and the ability/authority to control the operations of LCT. The court will sustain the demurrer to the first cause of action for "Fraud" since it is unclear whether it purports to assert a claim for intentional misrepresentation, false promise or concealment, each of which is a distinct theory of fraud with its own different prima facie elements. Additionally, the complaint does not meet the heightened pleading standard for fraud including who represented or promised what to whom, how it was communicated and when (and/or who concealed what from and when). However, defendant's contentions about mere opinions regarding future events are not actionable and plaintiff needing to specifically allege the speaker's authority to bind a corporate defendant are of no consequence here inasmuch the complaint alleges specific promises/representations about future events ostensibly under defendant's control and there is no corporate defendant named in this action. The court also rejects defendant's suggestion that the complaint has not and cannot allege the element of reliance; this element is adequately pled and not subject to demurrer here. Negligent Misrepresentation. Defendant demurs to this cause of action on essentially the same grounds as the prior cause of action. The demurrer to this cause of action will be sustained. First, contrary to what the specific allegations suggest, a claim for negligent misrepresentation is not a claim based on negligence which requires the pleading of the elements of duty, breach, causation and damages but rather, negligent misrepresentation is a species of fraud. (See, e.g., Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407.) Second, as this cause of action merely incorporates by reference the preceding allegations, it also fails to specifically plead who represented what to whom, how it was communicated and when. On the other hand, the court again rejects defendant's suggestions that (1) the alleged representations/promises are not actionable as mere opinions regarding future events and (2) the complaint does not allege the element of reasonable reliance. Unjust Enrichment. Defendant challenges this cause of action on the grounds it is fatally uncertain and unintelligible, it sounds in contract although no contract between the parties has been alleged and it fails to identify how defendant was unjustly enriched. DATE: 09/28/2018 MINUTE ORDER Page 2 DEPT: 54 Calendar No. CASE TITLE: Somers vs. Longoria CASE NO: 34-2018-00229212-CU-FR-GDS The court agrees that this cause of action fails to plead facts which demonstrate how defendant was unjustly enriched so as to warrant restitution but rejects defendant's argument that a contract must be alleged in order to state a claim for unjust enrichment. After all, unjust enrichment is a general principle underlying various legal doctrines and remedies which is essentially synonymous with restitution (see, e.g., Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793 (citing Dinosaur Development, Inc. v. White (1989) 216 Cal. App.3d 1310, 1315); Hirsch v. Bank of America (2003) 107 Cal.App.4th 708, 721) and restitution is clearly available in California when there is no underlying contract (see, e.g., Russell City Energy Co. LLC. v. City of Hayward (2017) 14 Cal.App.5th 54, 70 (fn.8 [party can assert claim for unjust enrichment by alleging a contract was void or rescinded].) Breach of Fiduciary Duty. According to defendant, no fiduciary duty exists between equal shareholders in a corporation even where they also serve as officers and directors since they are equal to one another and neither is in a superior position to exert unique influence over the other. Defendant maintains he was never in a position superior to plaintiff who, in reality, had the authority to control the operations of LCT. The demurrer to this final cause of action is overruled because it specifically alleges that defendant, in addition to being an equal shareholder, was the CEO of LCT and because California law recognizes that officers and directors owe fiduciary duties to shareholders (see, e.g., Jones v. H.F. Ahmanson (1969) 1 Cal.3d 93, 109-111). The court need not consider the other bases cited in the opposition on which a fiduciary duty could be found since they were not actually alleged in the complaint. (To the extent plaintiff now desires to do so, he may file and serve a noticed motion to amend.) Disposition As explained above, defendant's demurrer is sustained in part and overruled in part. As this is the first challenge to the complaint, leave to amend is granted. Plaintiff may file and serve an amended complaint no later than 10/9/2018. Although not required by court rule or statute, plaintiff is directed to present a copy of this order when the amended complaint is presented for filing. Defendant to respond within 30 days if the amended complaint is personally served, 35 days if served by mail. This minute order is effective immediately. No formal order or other notice is required. (Code Civ. Proc. §1019.5; CRC Rule 3.1312.) COURT RULING The matter was argued and submitted. The matter was taken under submission. SUBMITTED MATTER RULING After taking this matter under submission, the court hereby AFFIRMS the tentative ruling with the following addition. At oral argument, defendant Longoria for the first time cited Miles, Inc. v. Scripps Clinic & Research Foundation (1993 SD CA) 810 F.Supp. 1091 for the proposition that plaintiff in his capacity as a shareholder cannot sue directly defendant as an officer of LCT for breach of fiduciary duty but instead DATE: 09/28/2018 MINUTE ORDER Page 3 DEPT: 54 Calendar No. CASE TITLE: Somers vs. Longoria CASE NO: 34-2018-00229212-CU-FR-GDS must bring a derivative suit on behalf of LCT. Defendant's reliance on this federal district court decision is unavailing here since this argument about plaintiff's standing to sue for breach of fiduciary duty was not raised in the moving papers, since Miles is not binding precedent and since the cited portion of the decision is dicta given that the court had already determined (1) the plaintiff's breach of fiduciary duty claim was dependent on a separate conversion claim which was properly dismissed for other reasons and (2) the two individual defendants sued for breach of fiduciary duty, one an employee and the other a consultant, simply owed no fiduciary duty to the plaintiff shareholder. This minute order is effective immediately. No formal order or other notice is required. (Code Civ. Proc. §1019.5; CRC Rule 3.1312.) DATE: 09/28/2018 MINUTE ORDER Page 4 DEPT: 54 Calendar No.