Preview
1 Collin J. Vierra (State Bar No. 322720)
EIMER STAHL LLP
2 99 Almaden Blvd., Suite 600
San Jose, CA 95113-1605 9/15/2023
3
Telephone: (408) 889-1668
4 Email: cvierra@eimerstahl.com
5 Attorney for Plaintiffs Robert Arntsen,
Mary Lee. Arntsen Family Partnership, LP,
6 Brian Christopher Dunn Custodianship,
John Ho, and Jacky Huang
7
8
SUPERIOR COURT OF THE STATE OF CALIFORNIA
9
COUNTY OF SAN MATEO
10
Robert Arntsen; Mary Lee; Arntsen Family Case No. 22-CIV-01148
11 Partnership, LP; Brian Christopher Dunn
Custodianship, John Ho, and Quanyu Huang; Dept. 21
12
Plaintiffs, Hon. Robert D. Foiles
13
v. PLAINTIFFS’ OPPOSITION TO
14
DEMURRER TO SECOND AMENDED
15 David M. Bragg; Silicon Valley Real Ventures COMPLAINT
LLC; SVRV 385 Moore, LLC; SVRV 387
16 Moore, LLC; Gregory J. Davis; Kevin Wolfe; Date: September 27, 2023 9/29/2023
Jason Justesen; Paramont Woodside, LLC;
17 Paramont Capital, LLC; Monks Family Trust; Time: 9:00 a.m.
18 TEH Capital LLC; Caproc III, LLC; WZ
Partners, LLC; McClan Trust; Wild Rose Dept.: 21
19 Irrevocable Trust; Black Horse Holdings,
LLC; Phil Stoker; Diane Stoker; Scott O’Neil;
20 Dale Huish; and DOES 1–20,
21 Defendants.
22
23
24
25
26
27
28
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 TABLE OF CONTENTS
2 INTRODUCTION .......................................................................................................................... 5
3 FACTUAL BACKGROUND ......................................................................................................... 6
4 PROCEDURAL BACKGROUND................................................................................................. 7
5 LEGAL STANDARD ..................................................................................................................... 7
6 ARGUMENT .................................................................................................................................. 8
7 A. The Demurrer Should be Overruled as to the Ninth, Sixteenth, and Twentieth
Causes of Action Against Defendants Justesen and Wolfe. ................................... 8
8
1. Plaintiffs Adequately Plead their Ninth Cause of Action (Fraudulent
9 Concealment) Against Wolfe and Justesen................................................. 8
10 2. Plaintiffs Adequately Plead Their Sixteenth Cause of Action (Breach
of Fiduciary Duty) Against Wolfe. ........................................................... 10
11
3. Plaintiffs Adequately Allege Their Twentieth Cause of Action (UCL)
12 Against Wolfe and Justesen. ..................................................................... 12
13 B. The Demurrer Should Be Overruled as to the Seventeenth Cause of Action
(Fraudulent Transfer) Against All Defendants. .................................................... 12
14
C. The Demurrer Should Be Overruled as to the Twenty-First Cause of Action
15 (Quasi-Contract/Restitution/Unjust Enrichment) Against All Defendants........... 15
16 D. The Demurrer Should Be Overruled as to the Twenty-Second Cause of
Action (Money Had and Received) Against All Defendants................................ 17
17
CONCLUSION ............................................................................................................................. 18
18
19
20
21
22
23
24
25
26
27
28
2
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 TABLE OF AUTHORITIES
2 Cases
3 Astiana v. Hain Celestial Grp., Inc.
(9th Cir. 2015) 783 F.3d 753 .................................................................................................... 15
4
Boschma v. Home Loan Center, Inc.
5 (2011) 198 Cal.App.4th 230 ................................................................................................... 8, 9
6 Diamos v. Walmart Inc.
(C.D. Cal. Jan. 9, 2020) 2020 WL 1942322 ............................................................................. 16
7
Durell v. Sharp Healthcare
8 (2010) 183 Cal.App.4th 1350 ................................................................................................... 15
9 Econ. Refining & Serv. Co. v. Royal Nat’l Bank
(1971) 20 Cal.App.3d 434 ........................................................................................................ 13
10
Engalla v. Permanente Med. Grp., Inc.
11 (1997) 15 Cal.4th 951 ............................................................................................................... 12
12 Filip v. Bucurenciu
(2005) 129 Cal.App.4th 825 ..................................................................................................... 13
13
First Nationwide Savings v. Perry
14 (1992) 11 Cal.App.4th 1657 ..................................................................................................... 15
15 GAB Bus. Servs., Inc. v. Lindsey & Newsom Claim Servs., Inc.
(2000) 83 Cal.App.4th 409 ....................................................................................................... 11
16
Goncharov v. Uber Techs., Inc.
17 (2018) 19 Cal.App.5th 1157 ....................................................................................................... 7
18 Gressley v. Williams
(1961) 193 Cal.App.2d 636 ........................................................................................................ 8
19
Hobart v. Hobart Estate Co.
20 (1945) 26 Cal.2d 412 ...................................................................................................... 5, 11, 12
21 J.C. Peacock, Inc. v. Hasko
(1961) 196 Cal.App.2d 353 ...................................................................................................... 17
22
Knox v. Dean
23 (2012) 2015 Cal.App.4th 417 ................................................................................................... 10
24 Lazar v. Hertz Corp.
(1999) 69 Cal.App.4th 1494 ..................................................................................................... 12
25
Mains v. City Title Ins. Co.
26 (1949) 34 Cal.2d 580 ...................................................................................................... 6, 17, 18
27 Meister v. Mesinger
(2014) 230 Cal.App.4th 381 ..................................................................................................... 11
28
3
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Paulus v. Bob Lynch Ford, Inc.
(2006) 139 Cal.App.4th 659 ..................................................................................................... 12
2
People v. Cortez
3 (1998) 18 Cal.4th 1223 ............................................................................................................ 10
4 Pigeon Point Ranch, Inc. v. Perot
(1963) 59 Cal.2d 227 ............................................................................................................ 5, 10
5
Prakashpalan v. Enstrom
6 (2014) 233 Cal.App.4th 1105 ................................................................................................... 15
7 Rave Wonderland, Inc. v. City Lingerie, Inc.
(C.D. Cal. Sept. 11, 2019) 2019 WL 6792808 ......................................................................... 16
8
Redfearn v. Trader Joe’s Co. (2018)
9 20 Cal.App.5th 989................................................................................................................. 7, 8
10 Rotea v. Izuel
(1939) 14 Cal.2d 605 .......................................................................................................... 17, 18
11
SCC Acquisitions, Inc. v. Central Pac. Bank
12 (2012) 207 Cal.App.4th 859 ................................................................................................. 8, 10
13 Schultz v. Harney
(1994) 27 Cal.App.4th 1611 ..................................................................................................... 17
14
Stevens v. Super. Ct.
15 (1986) 180 Cal.App.3d 605 ..................................................................................................... 12
16 T W M Homes, Inc. v. Atherwood Realty & Inv. Co.
(1963) 214 Cal.App.2d 826 ...................................................................................................... 13
17
Unilogic, Inc. v. Burroughs Corp.
18 (1992) 10Cal.App.4th 612 ........................................................................................................ 15
19 Warner Constr. Corp. v. L.A.
(1970) 2 Cal.3d 285 ............................................................................................................... 8, 9
20
Welborne v. Ryman-Carroll Found.
21 (2018) 22 Cal.App.5th 719 ................................................................................................. 15, 16
22 Statutes
23 Civ. Code § 1573 ............................................................................................................................ 6
24 Civ. Code § 3439 ............................................................................................................................ 9
25 Civ. Code § 1709 ............................................................................................................................ 4
26 Civ. Code § 1710 ............................................................................................................................ 4
27 Rules
28 Rule of Court 3.1320....................................................................................................................... 4
4
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 INTRODUCTION
2 Defendants’ demurrer is meritless and should be overruled.
3 Plaintiffs state a claim for fraudulent concealment against Wolfe and Justesen because the
4 Second Amended Complaint (“SAC”) alleges ample facts demonstrating that Wolfe and Justesen
5 knowingly and intentionally concealed material facts from Plaintiffs that they had a duty to
6 disclose; that Plaintiffs would have changed their behavior had these facts been disclosed; and that
7 Plaintiffs were damaged by Defendants’ concealment. Plaintiffs also state a claim for breach of
8 fiduciary duty against Wolfe because it is black letter law that officers of an LLC owe duties to
9 the LLC’s members and Plaintiffs specifically allege that Wolfe was an officer of the Moore Road
10 LLCs. (Pigeon Point Ranch, Inc. v. Perot (1963) 59 Cal.2d 227, 233; Hobart v. Hobart Estate Co.
11 (1945) 26 Cal.2d 412, 433.) Because Plaintiffs have adequately pleaded claims against Wolfe and
12 Justesen, Plaintiffs have also stated a claim for violation of section 17200 by those Defendants.
13 Plaintiffs also state a claim for fraudulent transfer against all Defendants. Defendants
14 knowingly and intentionally drained the Moore Road LLCs of funds upon sale of the Moore Road
15 properties and transferred all the funds to themselves, thereby securing several hundred thousand
16 dollars in profits. They thus left Plaintiffs with nothing, even though Plaintiffs contributed roughly
17 one third of the total funds to the Moore Road Project and were entitled to a pro rata distribution
18 of proceeds. The consideration the demurring Defendants provided to the Moore Road LLCs—a
19 $2 million equity investment—plainly did not entitle them to 100% of the proceeds. Defendants’
20 unilateral decision to transfer all proceeds from the sale of the Moore Road properties to
21 themselves was thus a quintessential fraudulent transfer.
22 Plaintiffs also state a claim for unjust enrichment against all Defendants. This Court has
23 already concluded that Plaintiffs stated a claim for unjust enrichment inasmuch as they alleged in
24 the First Amended Complaint that Defendants “benefit[ed] from Plaintiffs[’] contributions to the
25 Moore Rd. LLCs.” (Order on Demurrer to FAC (May 26, 2023), at 6.) Defendants do not contest
26 that Plaintiffs make the same allegation in the SAC as to Paramont Woodside, Paramont Capital,
27 and Davis—nor do they even contest that Plaintiffs state claims for fraudulent concealment, breach
28 of fiduciary duty, and violation of section 17200 as to these Defendants. And they cannot dispute
5
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 that Plaintiffs similarly allege that Wolfe, Justesen, and the Paramont Woodside Investors received
2 an improper benefit from Plaintiffs’ investments in and loans to the Moore Road LLCs.
3 Plaintiffs also state a claim for money had and received against all Defendants. Plaintiffs
4 allege detailed facts showing that each Defendant “received money which belongs to another,”
5 i.e., Plaintiffs, “which in equity and good conscience, or in other words, in justice and right, should
6 be returned.” (Mains v. City Title Ins. Co. (1949) 34 Cal.2d 580, 586 [internal citations omitted].)
7 That is sufficient to state a cause of action for money had and received.
8 FACTUAL BACKGROUND
9 This case arises from a scheme by Defendants to intentionally defraud Plaintiffs out of
10 nearly $1 million.
11 Plaintiffs Robert Arntsen, Mary Lee, the Arntsen Family Partnership, LP, the Brian
12 Christopher Dunn Custodianship, and John Ho invested hundreds of thousands of dollars in a real
13 estate project (the “Moore Road Project”) pursuant to Effective Operating Agreements that
14 governed the LLCs operating the project (the “Moore Road LLCs”). By virtue of those investments
15 and their agreement to the terms of the Effective Operating Agreements, Plaintiffs became
16 members of the Moore Road LLCs. After the managers of the Moore Road LLCs obtained
17 Plaintiffs’ investments, they conspired with the demurring Defendants to enter secret, Unapproved
18 Operating Agreements that purported to eliminate Plaintiffs’ ownership interest in the Moore Road
19 Project. Later, Defendants also contracted with Plaintiff Quanyu Huang to grant him a preferred
20 equity position in the Moore Road Project, entitling him to a priority return of his capital with 12%
21 interest upon sale of the Moore Road properties.
22 Defendants then conspired to secretly amend the Unapproved Operating Agreements twice
23 more, purporting to secure for themselves hundreds of thousands of dollars in profits while
24 reinforcing their unlawful conspiracy to write Plaintiffs (including Quanyu) out of the Moore Road
25 Project entirely. Although Defendants knew of Plaintiffs’ contributions to the Moore Road Project
26 and their entitlement to share in the proceeds, upon sale of the Moore Road properties, they
27 knowingly and intentionally transferred all the proceeds from the Moore Road Project to
28 themselves, leaving the Moore Road LLCs insolvent and Plaintiffs with a loss of nearly $1 million.
6
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 These transfers violated the express terms of the Effective Operating Agreements and Plaintiffs’
2 contracts with Defendants. These transfers were also made with the intent to hinder Plaintiffs’
3 ability to recover what they were owed. Defendants’ unjust enrichment from this conspiracy was
4 directly proportional to Plaintiffs’ losses; all the proceeds belonging to Plaintiffs were
5 misappropriated by Defendants.
6 PROCEDURAL BACKGROUND
7 On May 26, 2023, this Court sustained-in-part and overruled-in-part certain Defendants’
8 demurrer to Plaintiffs’ First Amended Complaint with leave to amend. On June 30, 2023, Plaintiffs
9 filed their consolidated Second Amended Complaint (“SAC”) joining the plaintiffs from 23-CIV-
10 01099, which was consistent with the Court’s prior instruction that these cases should be
11 consolidated given the identicality of the Defendants, the parties’ respective attorneys, the relevant
12 documents and witnesses, and the issues of law and fact. On August 4, 2023, after originally
13 opposing the consolidation, the demurring Defendants stipulated with Plaintiffs to formally
14 consolidate this and the related case, No. 23-CIV-01099, while reserving their right to move to
15 bifurcate the trials. On August 22, 2023, this Court entered a formal order consolidating the cases,
16 without prejudice to the demurring Defendants’ right to move to bifurcate the trials. Plaintiffs
17 maintain that the cases should be tried together.
18 Plaintiffs and the demurring Defendants (hereinafter, “Defendants”) met and conferred
19 telephonically and agreed that Defendants would file a limited demurrer to the consolidated SAC,
20 which Plaintiffs now oppose.
21 LEGAL STANDARD
22 “A demurrer tests the legal sufficiency of the factual allegations in a complaint.” (Redfearn
23 v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 996.) The Court must assume “the truth of the
24 properly pleaded factual allegations, facts that reasonably can be inferred from those expressly
25 pleaded and matters of which judicial notice has been taken.” (Ibid.) The Court must “give the
26 complaint a reasonable interpretation, reading it as a whole and its parts in their context.”
27 (Goncharov v. Uber Techs., Inc. (2018) 19 Cal.App.5th 1157, 1165.) The Court must “construe
28 the complaint ‘liberally . . . with a view to substantial justice between the parties[.]’” (Ibid.) “In
7
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 determining whether the complaint is sufficient as against the demurrer . . . if on consideration of
2 all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against
3 the defendants the complaint will be held good although the facts may not be clearly
4 stated.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639 [emphasis added].) If a complaint
5 is defective, “great liberality should be exercised” in granting leave to amend. (Redfearn, 20
6 Cal.App.5th at 996; Rule of Court 3.1320(g) [presumption of right to amend].)
7 ARGUMENT
8 A. The Demurrer Should be Overruled as to the Ninth, Sixteenth, and Twentieth
Causes of Action Against Defendants Justesen and Wolfe.
9
1. Plaintiffs Adequately Plead their Ninth Cause of Action (Fraudulent
10 Concealment) Against Wolfe and Justesen.
11 The elements of fraudulent concealment are (1) defendant concealed or suppressed a
12 material fact, (2) defendant was under a duty to disclose the fact to the plaintiff, (3) defendant
13 intentionally concealed or suppressed the fact with the intent to defraud plaintiff, (4) plaintiff was
14 unaware of the fact and would not have acted as he/she did if he/she had known of the concealed
15 or suppressed fact, and (5) resulting damage to plaintiff. (Boschma v. Home Loan Center, Inc.
16 (2011) 198 Cal.App.4th 230, 248].) “California law recognizes multiple theories of fraudulent
17 concealment. (See Civ. Code §§ 1709–10.) “A duty to speak may arise in four ways: it may be
18 directly imposed by statute or other prescriptive law; it may be voluntarily assumed by contractual
19 undertaking; it may arise as an incident of a relationship between the defendant and the plaintiff;
20 and it may arise as a result of other conduct by the defendant that makes it wrongful for him to
21 remain silent.” (SCC Acquisitions, Inc. v. Central Pac. Bank (2012) 207 Cal.App.4th 859, 860.)
22 Thus, even “[i]n transactions which do not involve fiduciary or confidential relations, a cause
23 of action for non-disclosure of material facts may arise” where “the facts are known or
24 accessible only to defendant, and defendant knows they are not known to or reasonably
25 discoverable by the plaintiff.” (Warner Constr. Corp. v. L.A. (1970) 2 Cal.3d 285, 294 [emphasis
26 added].)
27 Plaintiffs adequately allege fraudulent concealment as to both Wolfe and Justesen.
28 As to Wolfe, Defendants concede that Plaintiffs adequately allege most elements for
8
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 fraudulent concealment against him. (Demurrer at 7.) They challenge only elements 2 (duty to
2 disclose) and 4 (that plaintiff would have acted differently had he/she known of the concealed or
3 suppressed fact). (Boschma 198 Cal.App.4th at 248.) But Plaintiffs plainly allege that Wolfe
4 concealed numerous facts from them that were “known or accessible only to [Wolfe],” and that
5 Wolfe “kn[ew] the[se][facts] [were] not known or reasonably discoverable by the plaintiff[s],”
6 which is sufficient as a matter of law to create duty to disclose (element 2). (Warner Constr., 2
7 Cal.3d at 294; see also, e.g., SAC ¶¶ 22, 133–36, 277 [Wolfe concealed fraud in connection with
8 the Unapproved Operating Agreements from Plaintiffs even though he knew of their contributions
9 to the Moore Road LLCs]; id. ¶¶ 22, 26, 44, 141–42, 163–64, 278 [Wolfe concealed Paramont’s
10 management takeover]; id. ¶¶ 22, 26, 44, 141, 171–83, 279 [Wolfe concealed Defendants’ profits
11 at Plaintiffs’ expense]; id. ¶¶ 22, 26, 44, 141, 163, 209, 280 [Wolfe concealed mismanagement of
12 Moore Road Project].) Moreover, although Wolfe had a duty to disclose these facts to Plaintiffs
13 independent of his fiduciary duty (Warner Constr., 2 Cal.3d at 294), Wolfe also owed a fiduciary
14 duty to Plaintiffs as the CFO of the Moore Road LLCs in which Plaintiffs were members. (See
15 infra A.2.) Plaintiffs also expressly allege that had they “been aware of these concealments, they
16 would have withdrawn their investments and would have refused to provide additional funds when
17 asked” (element 4). (SAC ¶ 282.) Thus, the Court should overrule Defendants’ demurrer to
18 Plaintiffs’ ninth cause of action as to Wolfe.
19 As to Justesen, Plaintiffs also allege that he fraudulently concealed from Plaintiffs (a) the
20 Unapproved Operating Agreements and amendments thereto that purported to write Plaintiffs out
21 of the Moore Road LLCs, (b) Paramont’s takeover as manager of the Moore Road LLCs, (c) that
22 Defendants each reaped substantial profits from sale of the Moore Road properties at Plaintiffs’
23 expense, and (d) the rampant mismanagement of the Moore Road Project. (See, e.g., SAC ¶¶ 106–
24 08, 164, 167, 196, 277–80; see also id. ¶¶ 45, 63.) Justesen was under a duty to disclose these facts
25 to Plaintiffs because they “[were] known or accessible only to [him], and [he] kn[ew] they [were]
26 not reasonably known to or reasonably discoverable by the plaintiff[s].” (Warner Constr., 2 Cal.3d
27 at 294; see also, e.g., SAC ¶¶ 45, 63, 113, 277–80; id. ¶¶ 106–108 [Justesen was in charge of due
28 diligence for Paramont’s investment in the Moore Road LLCs, and as part of that diligence,
9
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Justesen was put on notice that any modifications to the operating agreements to the Moore Road
2 LLCs could be made only with the unanimous consent of the existing members, which he
3 ignored].) Under the circumstances, it was plainly “wrongful for [Justesen] to remain silent” as to
4 these facts. (SCC Acquisitions, 207 Cal.App.4th at 859.)
5 Plaintiffs also allege that Justesen “knowingly and intentionally” concealed these facts
6 from Plaintiffs even after the properties were sold so that he could reap substantial profits for
7 himself and his co-conspirators. Plaintiffs also allege that he “conspired” with the other Defendants
8 “to unlawfully amend the Effective Operating Agreements via the Unapproved Operating
9 Agreements that purported to remove Plaintiffs from membership in the Moore Road LLCs.”
10 (SAC ¶¶ 12, 167, 277–81.) The allegation that Justesen “conspired” to violate Plaintiffs’ rights
11 presupposes intent to defraud. (See e.g., People v. Cortez (1998) 18 Cal.4th 1223, 1229 [conspiracy
12 presupposes specific intent].) Plaintiffs further allege that Justesen engaged in this conspiracy
13 “even after Bragg and SVRV told [him] about Plaintiffs’ contributions” to the Moore Road LLCs,
14 meaning that he had knowledge of Plaintiffs’ rights yet chose to violate them, further indicating
15 fraudulent intent. (SAC ¶ 12.)
16 Plaintiffs also expressly allege that “[h]ad Plaintiffs been aware of these concealments,
17 they would have withdrawn their investments and would have refused to provide additional funds
18 when asked.” (Id. ¶¶ 282, 285.) But because Defendants, including Justesen, concealed their
19 scheme to eliminate Plaintiffs’ interest in the Moore Road LLCs, Plaintiffs lost the entirety of their
20 investments and loans and were damaged in the amount of nearly $1 million. (Id. ¶ 180.) Thus, the
21 Court should overrule Defendants’ demurrer to Plaintiffs’ ninth cause of action as to Justesen.
22 2. Plaintiffs Adequately Plead Their Sixteenth Cause of Action (Breach of
Fiduciary Duty) Against Wolfe.
23
“The elements of a cause of action for breach of fiduciary duty are the existence of a
24
fiduciary relationship, its breach, and damage proximately caused by that breach.” (Knox v. Dean
25
(2012) 2015 Cal.App.4th 417 [citation omitted].) Fraudulent intent is not required. (Civ. Code
26
§ 1573.) It is black-letter law that an “officer of a corporation acts in a fiduciary capacity.”
27
(Pigeon Point Ranch, Inc. v. Perot (1963) 59 Cal.2d 227, 233 [emphasis added].) Any suggestion
28
10
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 that “denies the existence of any fiduciary duty in the case of an officer having knowledge of
2 special facts that enable him to profit at the expense of a shareholder . . . is not in accord with
3 accepted principles of justice and must be rejected.” (Hobart v. Hobart Estate Co. (1945) 26 Cal.2d
4 412, 433.) Even if an officer is formally stripped of his power, his fiduciary duty remains if he
5 “has actual or apparent authority” to act on behalf of the corporation, until he formally “resign[s]
6 the office.” (Id. at 421–22.) Financial officers have fiduciary duties under California law. (See
7 Meister v. Mesinger (2014) 230 Cal.App.4th 381.) Indeed, defendants “fail to identify any case in
8 which a corporate officer was found not to owe a fiduciary duty.” (GAB Bus. Servs., Inc. v. Lindsey
9 & Newsom Claim Servs., Inc. (2000) 83 Cal.App.4th 409, 419 n.1.)
10 Defendants demur to the Sixteenth Cause of Action exclusively on the ground that Wolfe
11 was not a fiduciary. 1 (Dem. 7–8.) But the allegations in the SAC, accepted as true, confirm that
12 Wolfe owed Plaintiffs fiduciary duties under California law. Plaintiffs allege repeatedly that they
13 were members in the Moore Road LLCs. (SAC ¶¶ 41–42, 287.) Plaintiffs allege that Wolfe became
14 the CFO (chief financial officer) of the Moore Road LLCs and “was the primary individual in
15 charge of the detailed review of the Moore Road LLCs’ finances.” (SAC ¶¶ 44, 135, 341.) They
16 also explicitly allege that Wolfe “reviewed the [Moore Road] LLCs’ finances” “in [his] capacit[y]
17 as [an] officer[] . . . of . . . the Moore Road LLCs.” (Id. ¶¶ 134–35.) Plaintiffs allege that Wolfe
18 became CFO “around August 2019” and obtained detailed information about Plaintiffs’
19 contributions to, and ownership interests in, the Moore Road LLCs. (Id. ¶¶ 141, 153, 163.) He also
20 prepared the accounting and taxes for the Moore Road LLCs. (Id. ¶ 163.) Wolfe thus plainly owed
21 fiduciary duties to the Moore Road LLCs and their members, including Plaintiffs.
22 Yet despite his authority over the Moore Road LLCs’ finances and his knowledge of
23 Plaintiffs’ ownership interests in the LLCs, Wolfe breached his fiduciary duties by allowing 100%
24 of the proceeds from the sale of the properties to be distributed to Defendants—leaving Plaintiffs
25 with nothing. (Id. ¶¶ 171, 180, 344, 346.) Wolfe personally profited from the sale. (Id. ¶ 177.)
26 Wolfe also “recklessly mismanage[ed] the [Moore Road] Project, including by failing to keep
27
28 1
Defendants also challenge whether Justesen was a fiduciary (Dem. 8), but Plaintiffs do not allege that
Justesen owed them fiduciary duties (SAC ¶¶ 338–49).
11
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 proper books and records and by continuing to employ Bragg and SVRV even though [he] knew
2 they were incompetent at best, and further by conspiring to grant Bragg and unearned broker’s
3 fee.” (Id. ¶ 345.)
4 Any finding that Wolfe, as an officer of the Moore Road LLCs, was not a fiduciary would
5 “not [be] in accord with accepted principles of justice and must be rejected.” (Hobart, 26 Cal.2d
6 at 433.) Therefore, because Plaintiffs allege facts sufficient to show that Wolfe was a fiduciary as
7 a matter of California law, and that he breached his fiduciary duties to Plaintiffs, the Court should
8 overrule Defendants’ demurrer to Plaintiffs’ sixteenth cause of action as to Wolfe.
9 3. Plaintiffs Adequately Allege Their Twentieth Cause of Action (UCL)
Against Wolfe and Justesen.
10
Section 17200 “borrows violations of other laws . . . and makes those unlawful practices
11
actionable.” (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1505.) “[V]irtually any law or
12
regulation—federal or state, statutory or common law—can serve as [a] predicate for a [section
13
17200 ‘unlawful’ violation.” (Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 681.)
14
“Thus, examples of [section 17200] claims properly alleging ‘unlawful’ conduct, while not
15
boundless, are seemingly so.” (Ibid.) Moreover, “unfair competition” under section 1700
16
includes “any” “business act or practice” that is “unfair or fraudulent.” (Ibid. [emphasis added].)
17
Defendants acknowledge that “a fraud or fiduciary duty claim could serve as a predicate
18
for a 17200 claim.” (Demurrer at 8.) A fraudulent concealment claim also serves as a predicate for
19
a section 17200 claim, as affirmative fraud and fraudulent concealment are materially identical
20
claims. (Stevens v. Super. Ct. (1986) 180 Cal.App.3d 605, 609 [concealment has same force and
21
effect as affirmative misrepresentation]; Engalla v. Permanente Med. Grp., Inc. (1997) 15 Cal.4th
22
951, 974 [fraud can include “false representation, concealment, or nondisclosure”].)
23
Plaintiffs adequately allege breach of fiduciary duty by Wolfe (see supra A.2) and
24
fraudulent concealment by both Wolfe and Justesen (see supra A.1.) The Court should thus
25
overrule Defendants’ demurrer to Plaintiffs’ twentieth cause of action as to Wolfe and Justesen.
26
B. The Demurrer Should Be Overruled as to the Seventeenth Cause of Action
27 (Fraudulent Transfer) Against All Defendants.
28 “A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether
12
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 the creditor’s claim arose before or after the transfer was made . . . if the debtor made the transfer
2 . . . (1) [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor[, and] (2) [w]ithout
3 receiving a reasonably equivalent value in exchange for the transfer . . . , and the debtor either (A)
4 [w]as engaged or was about to engage in a business or a transaction for which the remaining assets
5 of the debtor were unreasonably small in relation to the business or transaction[, or] (B) [i]ntended
6 to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond
7 the debtor’s ability to pay as they came due.” (Civ. Code § 3439.04.) “Whether a conveyance is
8 made with actual intent to defraud creditors is not a question of law but one of fact.” (T W M
9 Homes, Inc. v. Atherwood Realty & Inv. Co. (1963) 214 Cal.App.2d 826, 844 [emphasis added].)
10 “[P]roof” of fraudulent intent “often consists of inferences from the circumstances surrounding the
11 transfer[s].” (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834.) “In order to constitute
12 intent to defraud, it is not necessary that the transferor act maliciously with the desire of
13 causing harm to one or more creditors.” (Econ. Refining & Serv. Co. v. Royal Nat’l Bank (1971)
14 20 Cal.App.3d 434, 441 [emphasis added].)
15 Plaintiffs allege each of the elements of fraudulent transfer with respect to each of the
16 Defendants. First, Plaintiffs expressly allege that “[u]pon sale of the Moore Road properties . . .
17 Defendants drained the accounts of the Moore Road LLCs . . . , distributing the profits to each of
18 Defendants. These distributions were made with the intent to defraud Plaintiffs and to hinder and
19 delay Plaintiffs’ ability to recover th[e] [money] to which they were contractually entitled.” (SAC
20 ¶¶ 351–53.) Plaintiffs further allege that “[t]o frustrate any attempts by Plaintiffs to recover what
21 they were owed from the Moore Road LLCs, the Paramont Defendants promptly distributed all of
22 the funds from the Moore Road LLCs to themselves and the Paramont Woodside Investors. The
23 purpose of these quick transfers was to unjustly enrich each of the Paramont Defendants and
24 Paramont Woodside Investors at Plaintiffs’ expense, while knowingly and intentionally making it
25 as difficult as possible for Plaintiffs to eventually recover what they were owed.” (Id. ¶ 207.)
26 Plaintiffs also allege on information and belief, including documentary evidence, that “the
27 Paramont Defendants informed the Paramont Woodside Investors of these events,” and that they
28 even gloated that they were reaping a profit while Plaintiffs were getting wiped out. (Id. ¶¶ 179,
13
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 182, 208–09.) Plaintiffs also allege in detail how each Defendant profited from these fraudulent
2 transfers. (See, e.g., id. ¶¶ 41–58, 173–77, 180.)
3 Plaintiffs also allege that none of the Defendants making the transfers—the Moore Road
4 LLCs, Paramont Woodside, and Paramont Capital—“receiv[ed] a reasonably equivalent value in
5 exchange for the transfer” because Defendants receiving the transfers were not contractually
6 entitled to the hundreds of thousands in dollars in profits they took from the Moore Road Project
7 at Plaintiffs’ expense. (See id. ¶ 180.) Defendants contributed $2 million to the Moore Road LLCs,
8 while Plaintiffs contributed nearly $1 million. (E.g., id. ¶¶ 13, 180.) Although each member in the
9 Moore Road LLCs should have received a pro rata distribution of proceeds based on their
10 membership interests in the Moore Road LLCs (i.e., a roughly 2:1 split between Defendants and
11 Plaintiffs), Defendants instead took all the proceeds, leaving Plaintiffs completely wiped out (i.e.,
12 a 100%–0% split). (Id.) Defendants then engaged in further fraudulent transfers, distributing the
13 proceeds directly to Bragg, Paramont Woodside, Paramont Capital, and the Paramont Woodside
14 Investors, and indirectly to Davis, Wolfe, and Justesen. (Id. ¶¶ 171–83.)
15 Indeed, “Defendants’ enrichment was directly proportional to Plaintiffs’ harm” because
16 they transferred Plaintiffs’ money directly to their own coffers, rather than returning it to Plaintiffs
17 as they were legally bound to do. (Id. ¶ 380.) Moreover, Defendants knew they were not entitled
18 to these funds, including because they had detailed records showing each of Plaintiffs’
19 contributions to the Moore Road LLCs. (See, e.g., id. ¶¶ 133–36, 161, 355.) Indeed, before
20 Defendants transferred all the funds from the Moore Road Project to themselves in violation of
21 Plaintiffs’ contractual rights, Bragg—who had solicited each of Plaintiffs’ investments while
22 managing the Moore Road LLCs—even expressly reminded Defendants “that there are ‘other
23 members of these LLCs,’ meaning Plaintiffs.” (Id. ¶ 171.) Defendants willfully violated Plaintiffs’
24 rights anyway. (Id.)
25 Lastly, Plaintiffs allege that because of these transactions, the Moore Road LLCs in which
26 Plaintiffs were members were left insolvent, inhibiting Plaintiffs’ ability to recover the
27 fraudulently transferred funds. (SAC ¶ 352.) Thus, the Court should overrule Defendants’
28 demurrer to Plaintiffs’ seventeenth cause of action as to all Defendants.
14
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 C. The Demurrer Should Be Overruled as to the Twenty-First Cause of Action
(Quasi-Contract/Restitution/Unjust Enrichment) Against All Defendants.
2
“Unjust enrichment is synonymous with restitution.” (Durell v. Sharp Healthcare (2010)
3
183 Cal.App.4th 1350, 1370.) A person is required to make restitution if the failure to do so would
4
result in unjust enrichment. (First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1662-
5
1663; see also Unilogic, Inc. v. Burroughs Corp. (1992) 10Cal.App.4th 612, 627–28.) California
6
courts sometimes differ as to whether the appropriate action is one for unjust enrichment or quasi-
7
contract, but the result is the same: in both instances, the party who benefited at the expense of
8
another is required to make restitution. (Compare Prakashpalan v. Enstrom (2014) 233
9
Cal.App.4th 1105, 1132, with Astiana v. Hain Celestial Grp., Inc. (9th Cir. 2015) 783 F.3d 753,
10
762.) Transferees of unjustly obtained funds are still required to make restitution even if
11
they did not know the “pertinent facts” of the unjust attainment; they need only have
12
“suspected” the “pertinent facts.” (Welborne v. Ryman-Carroll Found. (2018) 22 Cal.App.5th
13
719, 726 [emphasis added].)
14
In sustaining-in-part and overruling-in-part Defendants’ demurrer to Plaintiffs’ FAC, this
15
Court acknowledged that Plaintiffs adequately alleged that Defendants “benefit[ed] from
16
Plaintiffs[’] contributions to the Moore Rd. LLCs” at Plaintiffs’ expense. (Order on Demurrer to
17
FAC (May 26, 2023), at 6.) Therefore, this Court concluded, “These allegations sufficiently
18
support a claim for quasi-contract/restitution/unjust enrichment.” (Id.) However, the court
19
sustained the demurrer to the unjust enrichment claim with leave to amend only as to those
20
Defendants against whom the Court concluded Plaintiffs “assert[ed] no [other] valid cause of
21
action.” (Id.)
22
Under this Court’s own reasoning, it should therefore overrule Defendants’ demurrer to
23
Plaintiffs’ unjust enrichment claim as to each of the Defendants who are not demurring to the
24
breach of fiduciary duty, fraudulent concealment, and section 17200 claims asserted in the SAC:
25
Paramont Woodside, Paramont Capital, and Davis. (Compare SAC ¶¶ 276–85, 338–349, 372–376
26
[asserting fraudulent concealment, breach of fiduciary duty, and section 17200 claims against
27
Paramont Woodside, Paramont Capital, and Davis], with Demurrer at 6–8 [demurring to these
28
15
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 claims only as to Wolfe and Justesen].) It also follows that if the Court overrules the present
2 demurrer as to any other claim asserted against Wolfe, Justesen, and/or the Paramont Woodside
3 Investors, it should also overrule Defendants’ demurrer as to Plaintiffs’ unjust enrichment claim
4 against them.
5 In addition, contrary to Defendants’ assertion that “Plaintiffs did not add any factual
6 allegations against Paramont Capital, Davis, Wolfe, or Justesen” (Dem. 11), Plaintiffs added
7 numerous such allegations, including regarding these Defendants’ specific knowledge and intent
8 to defraud Plaintiffs, their managerial authority, and even specific documents they had in their
9 possession regarding Plaintiffs’ contributions to the Moore Road LLCs. (E.g., FAC ¶¶ 26, 43–47,
10 108, 133–36, 153–55, 161–63, 168.) These allegations are not necessary to state a claim for unjust
11 enrichment, but combined with Plaintiffs’ allegations that each of the Defendants profited at
12 Plaintiffs’ expense (e.g., id. ¶¶ 175–77, 179–80, 182–83), they are more than sufficient to state
13 such a claim.
14 Moreover, even if the Court were to sustain Defendants’ demurrer as to all others claims
15 against Wolfe, Justesen, and the Paramont Woodside Investors, it should overrule the demurrer as
16 to Plaintiffs’ unjust enrichment claim. As courts applying California law have recognized, an
17 unjust enrichment claim can survive as a standalone claim if Plaintiffs properly plead the elements
18 for unjust enrichment and such a claim is Plaintiffs’ “only chance at recovery” from a particular
19 defendant. (See, e.g., Rave Wonderland, Inc. v. City Lingerie, Inc. (C.D. Cal. Sept. 11, 2019) 2019
20 WL 6792808, at *5; cf. Diamos v. Walmart Inc. (C.D. Cal. Jan. 9, 2020) 2020 WL 1942322, at *4
21 [holding that standalone cause of action for unjust enrichment is allowed under California law, but
22 that even if it were not, the Court would construe Plaintiff’s “allegations as sufficiently stating a
23 claim under quasi-contract . . . provid[ing] for restitution” in the alternative].) Here, Plaintiffs
24 adequately pleaded the elements for unjust enrichment as to each Defendant. Plaintiffs expressly
25 allege that each of the Defendants knew the “pertinent facts” regarding Plaintiffs’ contributions to
26 the Moore Road LLCs, yet distributed 100% of the profits to themselves in conscious disregard of
27 Plaintiffs’ rights. (Welborne, 22 Cal.App.5th at 726; see SAC ¶¶ 133–36, 161, 164, 167, 196, 277–
28 81, 355.) Even as to the Paramont Woodside Investors, Plaintiffs expressly allege that the
16
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Paramont Defendants provided them “with regular written, and in some cases oral, updates about
2 the Moore Road Project,” including that the Paramont Woodside Investors would be profiting at
3 Plaintiffs’ expense. (E.g., id. ¶¶ 182, 208–209.) Plaintiffs even support their allegations with
4 documentary evidence—far beyond what is required at the pleading stage. (Id.)
5 Therefore, because Plaintiffs plead that all Defendants—including the Paramont Woodside
6 Investors—were unjustly enriched at Plaintiffs’ expense, the Court should overrule Defendants’
7 demurrer to Plaintiffs’ twenty-first cause of action as to all Defendants even if it sustains the
8 demurrer as to other claims against various Defendants. 2
9 D. The Demurrer Should Be Overruled as to the Twenty-Second Cause of Action
(Money Had and Received) Against All Defendants.
10
“Although [a money had and received] action is one at law, it is governed by principles of
11
equity. It may be brought wherever one person has received money which belongs to another, and
12
which in equity and good conscience, or in other words, in justice and right, should be returned.”
13
(Mains v. City Title Ins. Co. (1949) 34 Cal.2d 580, 586 [internal citations omitted].) The goal of
14
“money had and received” is “to prevent unjust enrichment.” (Rotea v. Izuel (1939) 14 Cal.2d 605,
15
611.) “The measure of liability is the amount received.” (Ibid.) Money had and received is
16
available in many circumstances to prevent unjust enrichment, including, for example, where a
17
plaintiff gives money to a defendant pursuant to an unenforceable contract, by mistake, or under
18
duress. (See, e.g., Schultz v. Harney (1994) 27 Cal.App.4th 1611, 1623; J.C. Peacock, Inc. v.
19
Hasko (1961) 196 Cal.App.2d 353, 361.) No knowledge, intent, or any other specific mental state
20
is necessary to plead money had and received. (See Demurrer 12–13 [elements of money had and
21
received do not include knowledge, intent, or any other specific mental state].)
22
Here, Plaintiffs allege that they contributed nearly $1 million to the Moore Road LLCs
23
pursuant to contracts under which they should have received pro rata distributions from the sales
24
of the Moore Road properties (or, in some cases, priority distributions with preferred returns).
25
(E.g., FAC ¶¶ 83, 88, 96, 105, 121, 147, 149–50, 378, 386.) Yet Defendants knowingly and
26
27
28 2
Defendants argue that Plaintiffs have failed to state a “quantum meruit” claim (Demurrer 11), but
Plaintiffs have never purported to bring such a claim and thus do not respond to this argument.
17
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 intentionally violated Plaintiffs’ rights by distributing all the proceeds to themselves, reaping
2 hundreds of thousands of dollars in profits while leaving Plaintiffs with a complete loss of nearly
3 $1 million. (See, e.g., id. ¶¶ 41–58, 173–77, 180.) Plaintiffs thus allege that a portion of the
4 distributions retained by Defendants “belong[ed]” to Plaintiffs, but that Defendants “received” that
5 money unjustly. (Mains, 34 Cal.2d at 586.) “In equity and good conscience, or in other words, in
6 justice and right,” Defendants should plainly be required to return Plaintiffs’ share of the proceeds.
7 (Ibid.) That is all that is necessary to state a claim for money had and received.
8 Defendants argue that “Plaintiffs have failed to allege facts that any of the demurring
9 defendants received any money for the use and benefit of Plaintiffs.” (Dem. 13.) That is incorrect.
10 Plaintiffs allege that they contributed money to the Moore Road LLCs pursuant to clear,
11 contractual terms that entitled them to pro rata (or in some case, priority) distributions from the
12 sales of the Moore Road properties. (E.g., FAC ¶¶ 83, 88, 96, 105, 121, 147, 149–50, 378, 386.)
13 A portion of the proceeds generated by those sales was thus held in trust by the Moore Road LLCs
14 “for the benefit of Plaintiffs.” (See id.) Yet all the proceeds—including the portion that belonged
15 to Plaintiffs—were wrongfully diverted to Defendants, leaving Plaintiffs completely wiped out.
16 (Id. ¶¶ 180, 279.) Plaintiffs also expressly allege that the amount of money Defendants wrongfully
17 received “was directly proportional to Plaintiffs’” loss. (Id. ¶ 380.) That is a quintessential claim
18 for money had and received, which recognizes that Defendants’ “measure of liability [should be]
19 the amount received.” (Rotea, 14 Cal.2d at 605.) And although knowledge and intent are not
20 necessary to state a claim for money had and received, Plaintiffs do allege that Defendants
21 knowingly and intentionally took Plaintiffs’ money in contravention of Plaintiffs’ rights. (E.g.,
22 FAC ¶¶ 26, 43–47, 108, 133–36, 153–55, 161–63, 168.) Thus, the Court should overrule
23 Defendant
Preview
1 Collin J. Vierra (State Bar No. 322720) EIMER STAHL LLP 2 99 Almaden Blvd., Suite 600 San Jose, CA 95113-1605 9/15/2023 3 Telephone: (408) 889-1668 4 Email: cvierra@eimerstahl.com 5 Attorney for Plaintiffs Robert Arntsen, Mary Lee. Arntsen Family Partnership, LP, 6 Brian Christopher Dunn Custodianship, John Ho, and Jacky Huang 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF SAN MATEO 10 Robert Arntsen; Mary Lee; Arntsen Family Case No. 22-CIV-01148 11 Partnership, LP; Brian Christopher Dunn Custodianship, John Ho, and Quanyu Huang; Dept. 21 12 Plaintiffs, Hon. Robert D. Foiles 13 v. PLAINTIFFS’ OPPOSITION TO 14 DEMURRER TO SECOND AMENDED 15 David M. Bragg; Silicon Valley Real Ventures COMPLAINT LLC; SVRV 385 Moore, LLC; SVRV 387 16 Moore, LLC; Gregory J. Davis; Kevin Wolfe; Date: September 27, 2023 9/29/2023 Jason Justesen; Paramont Woodside, LLC; 17 Paramont Capital, LLC; Monks Family Trust; Time: 9:00 a.m. 18 TEH Capital LLC; Caproc III, LLC; WZ Partners, LLC; McClan Trust; Wild Rose Dept.: 21 19 Irrevocable Trust; Black Horse Holdings, LLC; Phil Stoker; Diane Stoker; Scott O’Neil; 20 Dale Huish; and DOES 1–20, 21 Defendants. 22 23 24 25 26 27 28 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 TABLE OF CONTENTS 2 INTRODUCTION .......................................................................................................................... 5 3 FACTUAL BACKGROUND ......................................................................................................... 6 4 PROCEDURAL BACKGROUND................................................................................................. 7 5 LEGAL STANDARD ..................................................................................................................... 7 6 ARGUMENT .................................................................................................................................. 8 7 A. The Demurrer Should be Overruled as to the Ninth, Sixteenth, and Twentieth Causes of Action Against Defendants Justesen and Wolfe. ................................... 8 8 1. Plaintiffs Adequately Plead their Ninth Cause of Action (Fraudulent 9 Concealment) Against Wolfe and Justesen................................................. 8 10 2. Plaintiffs Adequately Plead Their Sixteenth Cause of Action (Breach of Fiduciary Duty) Against Wolfe. ........................................................... 10 11 3. Plaintiffs Adequately Allege Their Twentieth Cause of Action (UCL) 12 Against Wolfe and Justesen. ..................................................................... 12 13 B. The Demurrer Should Be Overruled as to the Seventeenth Cause of Action (Fraudulent Transfer) Against All Defendants. .................................................... 12 14 C. The Demurrer Should Be Overruled as to the Twenty-First Cause of Action 15 (Quasi-Contract/Restitution/Unjust Enrichment) Against All Defendants........... 15 16 D. The Demurrer Should Be Overruled as to the Twenty-Second Cause of Action (Money Had and Received) Against All Defendants................................ 17 17 CONCLUSION ............................................................................................................................. 18 18 19 20 21 22 23 24 25 26 27 28 2 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 TABLE OF AUTHORITIES 2 Cases 3 Astiana v. Hain Celestial Grp., Inc. (9th Cir. 2015) 783 F.3d 753 .................................................................................................... 15 4 Boschma v. Home Loan Center, Inc. 5 (2011) 198 Cal.App.4th 230 ................................................................................................... 8, 9 6 Diamos v. Walmart Inc. (C.D. Cal. Jan. 9, 2020) 2020 WL 1942322 ............................................................................. 16 7 Durell v. Sharp Healthcare 8 (2010) 183 Cal.App.4th 1350 ................................................................................................... 15 9 Econ. Refining & Serv. Co. v. Royal Nat’l Bank (1971) 20 Cal.App.3d 434 ........................................................................................................ 13 10 Engalla v. Permanente Med. Grp., Inc. 11 (1997) 15 Cal.4th 951 ............................................................................................................... 12 12 Filip v. Bucurenciu (2005) 129 Cal.App.4th 825 ..................................................................................................... 13 13 First Nationwide Savings v. Perry 14 (1992) 11 Cal.App.4th 1657 ..................................................................................................... 15 15 GAB Bus. Servs., Inc. v. Lindsey & Newsom Claim Servs., Inc. (2000) 83 Cal.App.4th 409 ....................................................................................................... 11 16 Goncharov v. Uber Techs., Inc. 17 (2018) 19 Cal.App.5th 1157 ....................................................................................................... 7 18 Gressley v. Williams (1961) 193 Cal.App.2d 636 ........................................................................................................ 8 19 Hobart v. Hobart Estate Co. 20 (1945) 26 Cal.2d 412 ...................................................................................................... 5, 11, 12 21 J.C. Peacock, Inc. v. Hasko (1961) 196 Cal.App.2d 353 ...................................................................................................... 17 22 Knox v. Dean 23 (2012) 2015 Cal.App.4th 417 ................................................................................................... 10 24 Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494 ..................................................................................................... 12 25 Mains v. City Title Ins. Co. 26 (1949) 34 Cal.2d 580 ...................................................................................................... 6, 17, 18 27 Meister v. Mesinger (2014) 230 Cal.App.4th 381 ..................................................................................................... 11 28 3 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659 ..................................................................................................... 12 2 People v. Cortez 3 (1998) 18 Cal.4th 1223 ............................................................................................................ 10 4 Pigeon Point Ranch, Inc. v. Perot (1963) 59 Cal.2d 227 ............................................................................................................ 5, 10 5 Prakashpalan v. Enstrom 6 (2014) 233 Cal.App.4th 1105 ................................................................................................... 15 7 Rave Wonderland, Inc. v. City Lingerie, Inc. (C.D. Cal. Sept. 11, 2019) 2019 WL 6792808 ......................................................................... 16 8 Redfearn v. Trader Joe’s Co. (2018) 9 20 Cal.App.5th 989................................................................................................................. 7, 8 10 Rotea v. Izuel (1939) 14 Cal.2d 605 .......................................................................................................... 17, 18 11 SCC Acquisitions, Inc. v. Central Pac. Bank 12 (2012) 207 Cal.App.4th 859 ................................................................................................. 8, 10 13 Schultz v. Harney (1994) 27 Cal.App.4th 1611 ..................................................................................................... 17 14 Stevens v. Super. Ct. 15 (1986) 180 Cal.App.3d 605 ..................................................................................................... 12 16 T W M Homes, Inc. v. Atherwood Realty & Inv. Co. (1963) 214 Cal.App.2d 826 ...................................................................................................... 13 17 Unilogic, Inc. v. Burroughs Corp. 18 (1992) 10Cal.App.4th 612 ........................................................................................................ 15 19 Warner Constr. Corp. v. L.A. (1970) 2 Cal.3d 285 ............................................................................................................... 8, 9 20 Welborne v. Ryman-Carroll Found. 21 (2018) 22 Cal.App.5th 719 ................................................................................................. 15, 16 22 Statutes 23 Civ. Code § 1573 ............................................................................................................................ 6 24 Civ. Code § 3439 ............................................................................................................................ 9 25 Civ. Code § 1709 ............................................................................................................................ 4 26 Civ. Code § 1710 ............................................................................................................................ 4 27 Rules 28 Rule of Court 3.1320....................................................................................................................... 4 4 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 INTRODUCTION 2 Defendants’ demurrer is meritless and should be overruled. 3 Plaintiffs state a claim for fraudulent concealment against Wolfe and Justesen because the 4 Second Amended Complaint (“SAC”) alleges ample facts demonstrating that Wolfe and Justesen 5 knowingly and intentionally concealed material facts from Plaintiffs that they had a duty to 6 disclose; that Plaintiffs would have changed their behavior had these facts been disclosed; and that 7 Plaintiffs were damaged by Defendants’ concealment. Plaintiffs also state a claim for breach of 8 fiduciary duty against Wolfe because it is black letter law that officers of an LLC owe duties to 9 the LLC’s members and Plaintiffs specifically allege that Wolfe was an officer of the Moore Road 10 LLCs. (Pigeon Point Ranch, Inc. v. Perot (1963) 59 Cal.2d 227, 233; Hobart v. Hobart Estate Co. 11 (1945) 26 Cal.2d 412, 433.) Because Plaintiffs have adequately pleaded claims against Wolfe and 12 Justesen, Plaintiffs have also stated a claim for violation of section 17200 by those Defendants. 13 Plaintiffs also state a claim for fraudulent transfer against all Defendants. Defendants 14 knowingly and intentionally drained the Moore Road LLCs of funds upon sale of the Moore Road 15 properties and transferred all the funds to themselves, thereby securing several hundred thousand 16 dollars in profits. They thus left Plaintiffs with nothing, even though Plaintiffs contributed roughly 17 one third of the total funds to the Moore Road Project and were entitled to a pro rata distribution 18 of proceeds. The consideration the demurring Defendants provided to the Moore Road LLCs—a 19 $2 million equity investment—plainly did not entitle them to 100% of the proceeds. Defendants’ 20 unilateral decision to transfer all proceeds from the sale of the Moore Road properties to 21 themselves was thus a quintessential fraudulent transfer. 22 Plaintiffs also state a claim for unjust enrichment against all Defendants. This Court has 23 already concluded that Plaintiffs stated a claim for unjust enrichment inasmuch as they alleged in 24 the First Amended Complaint that Defendants “benefit[ed] from Plaintiffs[’] contributions to the 25 Moore Rd. LLCs.” (Order on Demurrer to FAC (May 26, 2023), at 6.) Defendants do not contest 26 that Plaintiffs make the same allegation in the SAC as to Paramont Woodside, Paramont Capital, 27 and Davis—nor do they even contest that Plaintiffs state claims for fraudulent concealment, breach 28 of fiduciary duty, and violation of section 17200 as to these Defendants. And they cannot dispute 5 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 that Plaintiffs similarly allege that Wolfe, Justesen, and the Paramont Woodside Investors received 2 an improper benefit from Plaintiffs’ investments in and loans to the Moore Road LLCs. 3 Plaintiffs also state a claim for money had and received against all Defendants. Plaintiffs 4 allege detailed facts showing that each Defendant “received money which belongs to another,” 5 i.e., Plaintiffs, “which in equity and good conscience, or in other words, in justice and right, should 6 be returned.” (Mains v. City Title Ins. Co. (1949) 34 Cal.2d 580, 586 [internal citations omitted].) 7 That is sufficient to state a cause of action for money had and received. 8 FACTUAL BACKGROUND 9 This case arises from a scheme by Defendants to intentionally defraud Plaintiffs out of 10 nearly $1 million. 11 Plaintiffs Robert Arntsen, Mary Lee, the Arntsen Family Partnership, LP, the Brian 12 Christopher Dunn Custodianship, and John Ho invested hundreds of thousands of dollars in a real 13 estate project (the “Moore Road Project”) pursuant to Effective Operating Agreements that 14 governed the LLCs operating the project (the “Moore Road LLCs”). By virtue of those investments 15 and their agreement to the terms of the Effective Operating Agreements, Plaintiffs became 16 members of the Moore Road LLCs. After the managers of the Moore Road LLCs obtained 17 Plaintiffs’ investments, they conspired with the demurring Defendants to enter secret, Unapproved 18 Operating Agreements that purported to eliminate Plaintiffs’ ownership interest in the Moore Road 19 Project. Later, Defendants also contracted with Plaintiff Quanyu Huang to grant him a preferred 20 equity position in the Moore Road Project, entitling him to a priority return of his capital with 12% 21 interest upon sale of the Moore Road properties. 22 Defendants then conspired to secretly amend the Unapproved Operating Agreements twice 23 more, purporting to secure for themselves hundreds of thousands of dollars in profits while 24 reinforcing their unlawful conspiracy to write Plaintiffs (including Quanyu) out of the Moore Road 25 Project entirely. Although Defendants knew of Plaintiffs’ contributions to the Moore Road Project 26 and their entitlement to share in the proceeds, upon sale of the Moore Road properties, they 27 knowingly and intentionally transferred all the proceeds from the Moore Road Project to 28 themselves, leaving the Moore Road LLCs insolvent and Plaintiffs with a loss of nearly $1 million. 6 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 These transfers violated the express terms of the Effective Operating Agreements and Plaintiffs’ 2 contracts with Defendants. These transfers were also made with the intent to hinder Plaintiffs’ 3 ability to recover what they were owed. Defendants’ unjust enrichment from this conspiracy was 4 directly proportional to Plaintiffs’ losses; all the proceeds belonging to Plaintiffs were 5 misappropriated by Defendants. 6 PROCEDURAL BACKGROUND 7 On May 26, 2023, this Court sustained-in-part and overruled-in-part certain Defendants’ 8 demurrer to Plaintiffs’ First Amended Complaint with leave to amend. On June 30, 2023, Plaintiffs 9 filed their consolidated Second Amended Complaint (“SAC”) joining the plaintiffs from 23-CIV- 10 01099, which was consistent with the Court’s prior instruction that these cases should be 11 consolidated given the identicality of the Defendants, the parties’ respective attorneys, the relevant 12 documents and witnesses, and the issues of law and fact. On August 4, 2023, after originally 13 opposing the consolidation, the demurring Defendants stipulated with Plaintiffs to formally 14 consolidate this and the related case, No. 23-CIV-01099, while reserving their right to move to 15 bifurcate the trials. On August 22, 2023, this Court entered a formal order consolidating the cases, 16 without prejudice to the demurring Defendants’ right to move to bifurcate the trials. Plaintiffs 17 maintain that the cases should be tried together. 18 Plaintiffs and the demurring Defendants (hereinafter, “Defendants”) met and conferred 19 telephonically and agreed that Defendants would file a limited demurrer to the consolidated SAC, 20 which Plaintiffs now oppose. 21 LEGAL STANDARD 22 “A demurrer tests the legal sufficiency of the factual allegations in a complaint.” (Redfearn 23 v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 996.) The Court must assume “the truth of the 24 properly pleaded factual allegations, facts that reasonably can be inferred from those expressly 25 pleaded and matters of which judicial notice has been taken.” (Ibid.) The Court must “give the 26 complaint a reasonable interpretation, reading it as a whole and its parts in their context.” 27 (Goncharov v. Uber Techs., Inc. (2018) 19 Cal.App.5th 1157, 1165.) The Court must “construe 28 the complaint ‘liberally . . . with a view to substantial justice between the parties[.]’” (Ibid.) “In 7 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 determining whether the complaint is sufficient as against the demurrer . . . if on consideration of 2 all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against 3 the defendants the complaint will be held good although the facts may not be clearly 4 stated.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639 [emphasis added].) If a complaint 5 is defective, “great liberality should be exercised” in granting leave to amend. (Redfearn, 20 6 Cal.App.5th at 996; Rule of Court 3.1320(g) [presumption of right to amend].) 7 ARGUMENT 8 A. The Demurrer Should be Overruled as to the Ninth, Sixteenth, and Twentieth Causes of Action Against Defendants Justesen and Wolfe. 9 1. Plaintiffs Adequately Plead their Ninth Cause of Action (Fraudulent 10 Concealment) Against Wolfe and Justesen. 11 The elements of fraudulent concealment are (1) defendant concealed or suppressed a 12 material fact, (2) defendant was under a duty to disclose the fact to the plaintiff, (3) defendant 13 intentionally concealed or suppressed the fact with the intent to defraud plaintiff, (4) plaintiff was 14 unaware of the fact and would not have acted as he/she did if he/she had known of the concealed 15 or suppressed fact, and (5) resulting damage to plaintiff. (Boschma v. Home Loan Center, Inc. 16 (2011) 198 Cal.App.4th 230, 248].) “California law recognizes multiple theories of fraudulent 17 concealment. (See Civ. Code §§ 1709–10.) “A duty to speak may arise in four ways: it may be 18 directly imposed by statute or other prescriptive law; it may be voluntarily assumed by contractual 19 undertaking; it may arise as an incident of a relationship between the defendant and the plaintiff; 20 and it may arise as a result of other conduct by the defendant that makes it wrongful for him to 21 remain silent.” (SCC Acquisitions, Inc. v. Central Pac. Bank (2012) 207 Cal.App.4th 859, 860.) 22 Thus, even “[i]n transactions which do not involve fiduciary or confidential relations, a cause 23 of action for non-disclosure of material facts may arise” where “the facts are known or 24 accessible only to defendant, and defendant knows they are not known to or reasonably 25 discoverable by the plaintiff.” (Warner Constr. Corp. v. L.A. (1970) 2 Cal.3d 285, 294 [emphasis 26 added].) 27 Plaintiffs adequately allege fraudulent concealment as to both Wolfe and Justesen. 28 As to Wolfe, Defendants concede that Plaintiffs adequately allege most elements for 8 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 fraudulent concealment against him. (Demurrer at 7.) They challenge only elements 2 (duty to 2 disclose) and 4 (that plaintiff would have acted differently had he/she known of the concealed or 3 suppressed fact). (Boschma 198 Cal.App.4th at 248.) But Plaintiffs plainly allege that Wolfe 4 concealed numerous facts from them that were “known or accessible only to [Wolfe],” and that 5 Wolfe “kn[ew] the[se][facts] [were] not known or reasonably discoverable by the plaintiff[s],” 6 which is sufficient as a matter of law to create duty to disclose (element 2). (Warner Constr., 2 7 Cal.3d at 294; see also, e.g., SAC ¶¶ 22, 133–36, 277 [Wolfe concealed fraud in connection with 8 the Unapproved Operating Agreements from Plaintiffs even though he knew of their contributions 9 to the Moore Road LLCs]; id. ¶¶ 22, 26, 44, 141–42, 163–64, 278 [Wolfe concealed Paramont’s 10 management takeover]; id. ¶¶ 22, 26, 44, 141, 171–83, 279 [Wolfe concealed Defendants’ profits 11 at Plaintiffs’ expense]; id. ¶¶ 22, 26, 44, 141, 163, 209, 280 [Wolfe concealed mismanagement of 12 Moore Road Project].) Moreover, although Wolfe had a duty to disclose these facts to Plaintiffs 13 independent of his fiduciary duty (Warner Constr., 2 Cal.3d at 294), Wolfe also owed a fiduciary 14 duty to Plaintiffs as the CFO of the Moore Road LLCs in which Plaintiffs were members. (See 15 infra A.2.) Plaintiffs also expressly allege that had they “been aware of these concealments, they 16 would have withdrawn their investments and would have refused to provide additional funds when 17 asked” (element 4). (SAC ¶ 282.) Thus, the Court should overrule Defendants’ demurrer to 18 Plaintiffs’ ninth cause of action as to Wolfe. 19 As to Justesen, Plaintiffs also allege that he fraudulently concealed from Plaintiffs (a) the 20 Unapproved Operating Agreements and amendments thereto that purported to write Plaintiffs out 21 of the Moore Road LLCs, (b) Paramont’s takeover as manager of the Moore Road LLCs, (c) that 22 Defendants each reaped substantial profits from sale of the Moore Road properties at Plaintiffs’ 23 expense, and (d) the rampant mismanagement of the Moore Road Project. (See, e.g., SAC ¶¶ 106– 24 08, 164, 167, 196, 277–80; see also id. ¶¶ 45, 63.) Justesen was under a duty to disclose these facts 25 to Plaintiffs because they “[were] known or accessible only to [him], and [he] kn[ew] they [were] 26 not reasonably known to or reasonably discoverable by the plaintiff[s].” (Warner Constr., 2 Cal.3d 27 at 294; see also, e.g., SAC ¶¶ 45, 63, 113, 277–80; id. ¶¶ 106–108 [Justesen was in charge of due 28 diligence for Paramont’s investment in the Moore Road LLCs, and as part of that diligence, 9 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Justesen was put on notice that any modifications to the operating agreements to the Moore Road 2 LLCs could be made only with the unanimous consent of the existing members, which he 3 ignored].) Under the circumstances, it was plainly “wrongful for [Justesen] to remain silent” as to 4 these facts. (SCC Acquisitions, 207 Cal.App.4th at 859.) 5 Plaintiffs also allege that Justesen “knowingly and intentionally” concealed these facts 6 from Plaintiffs even after the properties were sold so that he could reap substantial profits for 7 himself and his co-conspirators. Plaintiffs also allege that he “conspired” with the other Defendants 8 “to unlawfully amend the Effective Operating Agreements via the Unapproved Operating 9 Agreements that purported to remove Plaintiffs from membership in the Moore Road LLCs.” 10 (SAC ¶¶ 12, 167, 277–81.) The allegation that Justesen “conspired” to violate Plaintiffs’ rights 11 presupposes intent to defraud. (See e.g., People v. Cortez (1998) 18 Cal.4th 1223, 1229 [conspiracy 12 presupposes specific intent].) Plaintiffs further allege that Justesen engaged in this conspiracy 13 “even after Bragg and SVRV told [him] about Plaintiffs’ contributions” to the Moore Road LLCs, 14 meaning that he had knowledge of Plaintiffs’ rights yet chose to violate them, further indicating 15 fraudulent intent. (SAC ¶ 12.) 16 Plaintiffs also expressly allege that “[h]ad Plaintiffs been aware of these concealments, 17 they would have withdrawn their investments and would have refused to provide additional funds 18 when asked.” (Id. ¶¶ 282, 285.) But because Defendants, including Justesen, concealed their 19 scheme to eliminate Plaintiffs’ interest in the Moore Road LLCs, Plaintiffs lost the entirety of their 20 investments and loans and were damaged in the amount of nearly $1 million. (Id. ¶ 180.) Thus, the 21 Court should overrule Defendants’ demurrer to Plaintiffs’ ninth cause of action as to Justesen. 22 2. Plaintiffs Adequately Plead Their Sixteenth Cause of Action (Breach of Fiduciary Duty) Against Wolfe. 23 “The elements of a cause of action for breach of fiduciary duty are the existence of a 24 fiduciary relationship, its breach, and damage proximately caused by that breach.” (Knox v. Dean 25 (2012) 2015 Cal.App.4th 417 [citation omitted].) Fraudulent intent is not required. (Civ. Code 26 § 1573.) It is black-letter law that an “officer of a corporation acts in a fiduciary capacity.” 27 (Pigeon Point Ranch, Inc. v. Perot (1963) 59 Cal.2d 227, 233 [emphasis added].) Any suggestion 28 10 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 that “denies the existence of any fiduciary duty in the case of an officer having knowledge of 2 special facts that enable him to profit at the expense of a shareholder . . . is not in accord with 3 accepted principles of justice and must be rejected.” (Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 4 412, 433.) Even if an officer is formally stripped of his power, his fiduciary duty remains if he 5 “has actual or apparent authority” to act on behalf of the corporation, until he formally “resign[s] 6 the office.” (Id. at 421–22.) Financial officers have fiduciary duties under California law. (See 7 Meister v. Mesinger (2014) 230 Cal.App.4th 381.) Indeed, defendants “fail to identify any case in 8 which a corporate officer was found not to owe a fiduciary duty.” (GAB Bus. Servs., Inc. v. Lindsey 9 & Newsom Claim Servs., Inc. (2000) 83 Cal.App.4th 409, 419 n.1.) 10 Defendants demur to the Sixteenth Cause of Action exclusively on the ground that Wolfe 11 was not a fiduciary. 1 (Dem. 7–8.) But the allegations in the SAC, accepted as true, confirm that 12 Wolfe owed Plaintiffs fiduciary duties under California law. Plaintiffs allege repeatedly that they 13 were members in the Moore Road LLCs. (SAC ¶¶ 41–42, 287.) Plaintiffs allege that Wolfe became 14 the CFO (chief financial officer) of the Moore Road LLCs and “was the primary individual in 15 charge of the detailed review of the Moore Road LLCs’ finances.” (SAC ¶¶ 44, 135, 341.) They 16 also explicitly allege that Wolfe “reviewed the [Moore Road] LLCs’ finances” “in [his] capacit[y] 17 as [an] officer[] . . . of . . . the Moore Road LLCs.” (Id. ¶¶ 134–35.) Plaintiffs allege that Wolfe 18 became CFO “around August 2019” and obtained detailed information about Plaintiffs’ 19 contributions to, and ownership interests in, the Moore Road LLCs. (Id. ¶¶ 141, 153, 163.) He also 20 prepared the accounting and taxes for the Moore Road LLCs. (Id. ¶ 163.) Wolfe thus plainly owed 21 fiduciary duties to the Moore Road LLCs and their members, including Plaintiffs. 22 Yet despite his authority over the Moore Road LLCs’ finances and his knowledge of 23 Plaintiffs’ ownership interests in the LLCs, Wolfe breached his fiduciary duties by allowing 100% 24 of the proceeds from the sale of the properties to be distributed to Defendants—leaving Plaintiffs 25 with nothing. (Id. ¶¶ 171, 180, 344, 346.) Wolfe personally profited from the sale. (Id. ¶ 177.) 26 Wolfe also “recklessly mismanage[ed] the [Moore Road] Project, including by failing to keep 27 28 1 Defendants also challenge whether Justesen was a fiduciary (Dem. 8), but Plaintiffs do not allege that Justesen owed them fiduciary duties (SAC ¶¶ 338–49). 11 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 proper books and records and by continuing to employ Bragg and SVRV even though [he] knew 2 they were incompetent at best, and further by conspiring to grant Bragg and unearned broker’s 3 fee.” (Id. ¶ 345.) 4 Any finding that Wolfe, as an officer of the Moore Road LLCs, was not a fiduciary would 5 “not [be] in accord with accepted principles of justice and must be rejected.” (Hobart, 26 Cal.2d 6 at 433.) Therefore, because Plaintiffs allege facts sufficient to show that Wolfe was a fiduciary as 7 a matter of California law, and that he breached his fiduciary duties to Plaintiffs, the Court should 8 overrule Defendants’ demurrer to Plaintiffs’ sixteenth cause of action as to Wolfe. 9 3. Plaintiffs Adequately Allege Their Twentieth Cause of Action (UCL) Against Wolfe and Justesen. 10 Section 17200 “borrows violations of other laws . . . and makes those unlawful practices 11 actionable.” (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1505.) “[V]irtually any law or 12 regulation—federal or state, statutory or common law—can serve as [a] predicate for a [section 13 17200 ‘unlawful’ violation.” (Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 681.) 14 “Thus, examples of [section 17200] claims properly alleging ‘unlawful’ conduct, while not 15 boundless, are seemingly so.” (Ibid.) Moreover, “unfair competition” under section 1700 16 includes “any” “business act or practice” that is “unfair or fraudulent.” (Ibid. [emphasis added].) 17 Defendants acknowledge that “a fraud or fiduciary duty claim could serve as a predicate 18 for a 17200 claim.” (Demurrer at 8.) A fraudulent concealment claim also serves as a predicate for 19 a section 17200 claim, as affirmative fraud and fraudulent concealment are materially identical 20 claims. (Stevens v. Super. Ct. (1986) 180 Cal.App.3d 605, 609 [concealment has same force and 21 effect as affirmative misrepresentation]; Engalla v. Permanente Med. Grp., Inc. (1997) 15 Cal.4th 22 951, 974 [fraud can include “false representation, concealment, or nondisclosure”].) 23 Plaintiffs adequately allege breach of fiduciary duty by Wolfe (see supra A.2) and 24 fraudulent concealment by both Wolfe and Justesen (see supra A.1.) The Court should thus 25 overrule Defendants’ demurrer to Plaintiffs’ twentieth cause of action as to Wolfe and Justesen. 26 B. The Demurrer Should Be Overruled as to the Seventeenth Cause of Action 27 (Fraudulent Transfer) Against All Defendants. 28 “A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether 12 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 the creditor’s claim arose before or after the transfer was made . . . if the debtor made the transfer 2 . . . (1) [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor[, and] (2) [w]ithout 3 receiving a reasonably equivalent value in exchange for the transfer . . . , and the debtor either (A) 4 [w]as engaged or was about to engage in a business or a transaction for which the remaining assets 5 of the debtor were unreasonably small in relation to the business or transaction[, or] (B) [i]ntended 6 to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond 7 the debtor’s ability to pay as they came due.” (Civ. Code § 3439.04.) “Whether a conveyance is 8 made with actual intent to defraud creditors is not a question of law but one of fact.” (T W M 9 Homes, Inc. v. Atherwood Realty & Inv. Co. (1963) 214 Cal.App.2d 826, 844 [emphasis added].) 10 “[P]roof” of fraudulent intent “often consists of inferences from the circumstances surrounding the 11 transfer[s].” (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834.) “In order to constitute 12 intent to defraud, it is not necessary that the transferor act maliciously with the desire of 13 causing harm to one or more creditors.” (Econ. Refining & Serv. Co. v. Royal Nat’l Bank (1971) 14 20 Cal.App.3d 434, 441 [emphasis added].) 15 Plaintiffs allege each of the elements of fraudulent transfer with respect to each of the 16 Defendants. First, Plaintiffs expressly allege that “[u]pon sale of the Moore Road properties . . . 17 Defendants drained the accounts of the Moore Road LLCs . . . , distributing the profits to each of 18 Defendants. These distributions were made with the intent to defraud Plaintiffs and to hinder and 19 delay Plaintiffs’ ability to recover th[e] [money] to which they were contractually entitled.” (SAC 20 ¶¶ 351–53.) Plaintiffs further allege that “[t]o frustrate any attempts by Plaintiffs to recover what 21 they were owed from the Moore Road LLCs, the Paramont Defendants promptly distributed all of 22 the funds from the Moore Road LLCs to themselves and the Paramont Woodside Investors. The 23 purpose of these quick transfers was to unjustly enrich each of the Paramont Defendants and 24 Paramont Woodside Investors at Plaintiffs’ expense, while knowingly and intentionally making it 25 as difficult as possible for Plaintiffs to eventually recover what they were owed.” (Id. ¶ 207.) 26 Plaintiffs also allege on information and belief, including documentary evidence, that “the 27 Paramont Defendants informed the Paramont Woodside Investors of these events,” and that they 28 even gloated that they were reaping a profit while Plaintiffs were getting wiped out. (Id. ¶¶ 179, 13 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 182, 208–09.) Plaintiffs also allege in detail how each Defendant profited from these fraudulent 2 transfers. (See, e.g., id. ¶¶ 41–58, 173–77, 180.) 3 Plaintiffs also allege that none of the Defendants making the transfers—the Moore Road 4 LLCs, Paramont Woodside, and Paramont Capital—“receiv[ed] a reasonably equivalent value in 5 exchange for the transfer” because Defendants receiving the transfers were not contractually 6 entitled to the hundreds of thousands in dollars in profits they took from the Moore Road Project 7 at Plaintiffs’ expense. (See id. ¶ 180.) Defendants contributed $2 million to the Moore Road LLCs, 8 while Plaintiffs contributed nearly $1 million. (E.g., id. ¶¶ 13, 180.) Although each member in the 9 Moore Road LLCs should have received a pro rata distribution of proceeds based on their 10 membership interests in the Moore Road LLCs (i.e., a roughly 2:1 split between Defendants and 11 Plaintiffs), Defendants instead took all the proceeds, leaving Plaintiffs completely wiped out (i.e., 12 a 100%–0% split). (Id.) Defendants then engaged in further fraudulent transfers, distributing the 13 proceeds directly to Bragg, Paramont Woodside, Paramont Capital, and the Paramont Woodside 14 Investors, and indirectly to Davis, Wolfe, and Justesen. (Id. ¶¶ 171–83.) 15 Indeed, “Defendants’ enrichment was directly proportional to Plaintiffs’ harm” because 16 they transferred Plaintiffs’ money directly to their own coffers, rather than returning it to Plaintiffs 17 as they were legally bound to do. (Id. ¶ 380.) Moreover, Defendants knew they were not entitled 18 to these funds, including because they had detailed records showing each of Plaintiffs’ 19 contributions to the Moore Road LLCs. (See, e.g., id. ¶¶ 133–36, 161, 355.) Indeed, before 20 Defendants transferred all the funds from the Moore Road Project to themselves in violation of 21 Plaintiffs’ contractual rights, Bragg—who had solicited each of Plaintiffs’ investments while 22 managing the Moore Road LLCs—even expressly reminded Defendants “that there are ‘other 23 members of these LLCs,’ meaning Plaintiffs.” (Id. ¶ 171.) Defendants willfully violated Plaintiffs’ 24 rights anyway. (Id.) 25 Lastly, Plaintiffs allege that because of these transactions, the Moore Road LLCs in which 26 Plaintiffs were members were left insolvent, inhibiting Plaintiffs’ ability to recover the 27 fraudulently transferred funds. (SAC ¶ 352.) Thus, the Court should overrule Defendants’ 28 demurrer to Plaintiffs’ seventeenth cause of action as to all Defendants. 14 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 C. The Demurrer Should Be Overruled as to the Twenty-First Cause of Action (Quasi-Contract/Restitution/Unjust Enrichment) Against All Defendants. 2 “Unjust enrichment is synonymous with restitution.” (Durell v. Sharp Healthcare (2010) 3 183 Cal.App.4th 1350, 1370.) A person is required to make restitution if the failure to do so would 4 result in unjust enrichment. (First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1662- 5 1663; see also Unilogic, Inc. v. Burroughs Corp. (1992) 10Cal.App.4th 612, 627–28.) California 6 courts sometimes differ as to whether the appropriate action is one for unjust enrichment or quasi- 7 contract, but the result is the same: in both instances, the party who benefited at the expense of 8 another is required to make restitution. (Compare Prakashpalan v. Enstrom (2014) 233 9 Cal.App.4th 1105, 1132, with Astiana v. Hain Celestial Grp., Inc. (9th Cir. 2015) 783 F.3d 753, 10 762.) Transferees of unjustly obtained funds are still required to make restitution even if 11 they did not know the “pertinent facts” of the unjust attainment; they need only have 12 “suspected” the “pertinent facts.” (Welborne v. Ryman-Carroll Found. (2018) 22 Cal.App.5th 13 719, 726 [emphasis added].) 14 In sustaining-in-part and overruling-in-part Defendants’ demurrer to Plaintiffs’ FAC, this 15 Court acknowledged that Plaintiffs adequately alleged that Defendants “benefit[ed] from 16 Plaintiffs[’] contributions to the Moore Rd. LLCs” at Plaintiffs’ expense. (Order on Demurrer to 17 FAC (May 26, 2023), at 6.) Therefore, this Court concluded, “These allegations sufficiently 18 support a claim for quasi-contract/restitution/unjust enrichment.” (Id.) However, the court 19 sustained the demurrer to the unjust enrichment claim with leave to amend only as to those 20 Defendants against whom the Court concluded Plaintiffs “assert[ed] no [other] valid cause of 21 action.” (Id.) 22 Under this Court’s own reasoning, it should therefore overrule Defendants’ demurrer to 23 Plaintiffs’ unjust enrichment claim as to each of the Defendants who are not demurring to the 24 breach of fiduciary duty, fraudulent concealment, and section 17200 claims asserted in the SAC: 25 Paramont Woodside, Paramont Capital, and Davis. (Compare SAC ¶¶ 276–85, 338–349, 372–376 26 [asserting fraudulent concealment, breach of fiduciary duty, and section 17200 claims against 27 Paramont Woodside, Paramont Capital, and Davis], with Demurrer at 6–8 [demurring to these 28 15 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 claims only as to Wolfe and Justesen].) It also follows that if the Court overrules the present 2 demurrer as to any other claim asserted against Wolfe, Justesen, and/or the Paramont Woodside 3 Investors, it should also overrule Defendants’ demurrer as to Plaintiffs’ unjust enrichment claim 4 against them. 5 In addition, contrary to Defendants’ assertion that “Plaintiffs did not add any factual 6 allegations against Paramont Capital, Davis, Wolfe, or Justesen” (Dem. 11), Plaintiffs added 7 numerous such allegations, including regarding these Defendants’ specific knowledge and intent 8 to defraud Plaintiffs, their managerial authority, and even specific documents they had in their 9 possession regarding Plaintiffs’ contributions to the Moore Road LLCs. (E.g., FAC ¶¶ 26, 43–47, 10 108, 133–36, 153–55, 161–63, 168.) These allegations are not necessary to state a claim for unjust 11 enrichment, but combined with Plaintiffs’ allegations that each of the Defendants profited at 12 Plaintiffs’ expense (e.g., id. ¶¶ 175–77, 179–80, 182–83), they are more than sufficient to state 13 such a claim. 14 Moreover, even if the Court were to sustain Defendants’ demurrer as to all others claims 15 against Wolfe, Justesen, and the Paramont Woodside Investors, it should overrule the demurrer as 16 to Plaintiffs’ unjust enrichment claim. As courts applying California law have recognized, an 17 unjust enrichment claim can survive as a standalone claim if Plaintiffs properly plead the elements 18 for unjust enrichment and such a claim is Plaintiffs’ “only chance at recovery” from a particular 19 defendant. (See, e.g., Rave Wonderland, Inc. v. City Lingerie, Inc. (C.D. Cal. Sept. 11, 2019) 2019 20 WL 6792808, at *5; cf. Diamos v. Walmart Inc. (C.D. Cal. Jan. 9, 2020) 2020 WL 1942322, at *4 21 [holding that standalone cause of action for unjust enrichment is allowed under California law, but 22 that even if it were not, the Court would construe Plaintiff’s “allegations as sufficiently stating a 23 claim under quasi-contract . . . provid[ing] for restitution” in the alternative].) Here, Plaintiffs 24 adequately pleaded the elements for unjust enrichment as to each Defendant. Plaintiffs expressly 25 allege that each of the Defendants knew the “pertinent facts” regarding Plaintiffs’ contributions to 26 the Moore Road LLCs, yet distributed 100% of the profits to themselves in conscious disregard of 27 Plaintiffs’ rights. (Welborne, 22 Cal.App.5th at 726; see SAC ¶¶ 133–36, 161, 164, 167, 196, 277– 28 81, 355.) Even as to the Paramont Woodside Investors, Plaintiffs expressly allege that the 16 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Paramont Defendants provided them “with regular written, and in some cases oral, updates about 2 the Moore Road Project,” including that the Paramont Woodside Investors would be profiting at 3 Plaintiffs’ expense. (E.g., id. ¶¶ 182, 208–209.) Plaintiffs even support their allegations with 4 documentary evidence—far beyond what is required at the pleading stage. (Id.) 5 Therefore, because Plaintiffs plead that all Defendants—including the Paramont Woodside 6 Investors—were unjustly enriched at Plaintiffs’ expense, the Court should overrule Defendants’ 7 demurrer to Plaintiffs’ twenty-first cause of action as to all Defendants even if it sustains the 8 demurrer as to other claims against various Defendants. 2 9 D. The Demurrer Should Be Overruled as to the Twenty-Second Cause of Action (Money Had and Received) Against All Defendants. 10 “Although [a money had and received] action is one at law, it is governed by principles of 11 equity. It may be brought wherever one person has received money which belongs to another, and 12 which in equity and good conscience, or in other words, in justice and right, should be returned.” 13 (Mains v. City Title Ins. Co. (1949) 34 Cal.2d 580, 586 [internal citations omitted].) The goal of 14 “money had and received” is “to prevent unjust enrichment.” (Rotea v. Izuel (1939) 14 Cal.2d 605, 15 611.) “The measure of liability is the amount received.” (Ibid.) Money had and received is 16 available in many circumstances to prevent unjust enrichment, including, for example, where a 17 plaintiff gives money to a defendant pursuant to an unenforceable contract, by mistake, or under 18 duress. (See, e.g., Schultz v. Harney (1994) 27 Cal.App.4th 1611, 1623; J.C. Peacock, Inc. v. 19 Hasko (1961) 196 Cal.App.2d 353, 361.) No knowledge, intent, or any other specific mental state 20 is necessary to plead money had and received. (See Demurrer 12–13 [elements of money had and 21 received do not include knowledge, intent, or any other specific mental state].) 22 Here, Plaintiffs allege that they contributed nearly $1 million to the Moore Road LLCs 23 pursuant to contracts under which they should have received pro rata distributions from the sales 24 of the Moore Road properties (or, in some cases, priority distributions with preferred returns). 25 (E.g., FAC ¶¶ 83, 88, 96, 105, 121, 147, 149–50, 378, 386.) Yet Defendants knowingly and 26 27 28 2 Defendants argue that Plaintiffs have failed to state a “quantum meruit” claim (Demurrer 11), but Plaintiffs have never purported to bring such a claim and thus do not respond to this argument. 17 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 intentionally violated Plaintiffs’ rights by distributing all the proceeds to themselves, reaping 2 hundreds of thousands of dollars in profits while leaving Plaintiffs with a complete loss of nearly 3 $1 million. (See, e.g., id. ¶¶ 41–58, 173–77, 180.) Plaintiffs thus allege that a portion of the 4 distributions retained by Defendants “belong[ed]” to Plaintiffs, but that Defendants “received” that 5 money unjustly. (Mains, 34 Cal.2d at 586.) “In equity and good conscience, or in other words, in 6 justice and right,” Defendants should plainly be required to return Plaintiffs’ share of the proceeds. 7 (Ibid.) That is all that is necessary to state a claim for money had and received. 8 Defendants argue that “Plaintiffs have failed to allege facts that any of the demurring 9 defendants received any money for the use and benefit of Plaintiffs.” (Dem. 13.) That is incorrect. 10 Plaintiffs allege that they contributed money to the Moore Road LLCs pursuant to clear, 11 contractual terms that entitled them to pro rata (or in some case, priority) distributions from the 12 sales of the Moore Road properties. (E.g., FAC ¶¶ 83, 88, 96, 105, 121, 147, 149–50, 378, 386.) 13 A portion of the proceeds generated by those sales was thus held in trust by the Moore Road LLCs 14 “for the benefit of Plaintiffs.” (See id.) Yet all the proceeds—including the portion that belonged 15 to Plaintiffs—were wrongfully diverted to Defendants, leaving Plaintiffs completely wiped out. 16 (Id. ¶¶ 180, 279.) Plaintiffs also expressly allege that the amount of money Defendants wrongfully 17 received “was directly proportional to Plaintiffs’” loss. (Id. ¶ 380.) That is a quintessential claim 18 for money had and received, which recognizes that Defendants’ “measure of liability [should be] 19 the amount received.” (Rotea, 14 Cal.2d at 605.) And although knowledge and intent are not 20 necessary to state a claim for money had and received, Plaintiffs do allege that Defendants 21 knowingly and intentionally took Plaintiffs’ money in contravention of Plaintiffs’ rights. (E.g., 22 FAC ¶¶ 26, 43–47, 108, 133–36, 153–55, 161–63, 168.) Thus, the Court should overrule 23 Defendant