BENCHLAND PARTNERS v. OZAWA

I. BACKGROUND

Plaintiff Benchland Partners is a general partnership, which has a general partner, The Holcomb Corporation. Plaintiff is the managing general partner of Seascape Resort, Ltd., which owns and operates Seascape Beach Resort. (First Amended Complaint (“FAC”) ¶¶ 1-3.) Defendant Ozawa is the majority limited general partner of Seascape Resort, Ltd., which resulted from his $4,000,000.00 investment in 1991. (FAC ¶¶ 9-11.)

Plaintiff alleges that this lawsuit resulted in part from Ozawa’s improper refusal to consent to the refinance of an existing business loan for Seascape Resort, Ltd. necessary for the resort’s continued operations. (FAC ¶ 9.) The resort has recently faced significant financial problems, lawsuits by its homeowners’ association and individual homeowners, and potential interruptions to its continuing operations.

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The resort has had a revolving line of credit since 2015, with various extensions and payoff deadlines. The most recent deadline of December 24, 2024, prompted plaintiff, 16 days before the payoff deadline, to seek Ozawa’s and other limited partners’ consent to its refinancing. (FAC ¶ 16.) A week later, Ozawa emailed his refusal to consent. (FAC ¶ 17.) Plaintiff alleges this refinance was personally guaranteed by plaintiff’s affiliates (two members of the Holcomb Corporation) and included very reasonable terms, yet Ozawa wrongfully withheld consent to the refinance without a good faith basis. (FAC ¶¶ 18-20.)

Thereafter, in February 2025, plaintiff alleges the bank issued a written demand to cure the default when the note was not paid. (FAC ¶ 23.) Plaintiff obtained financing following its ex parte application to this court authorizing the general partner to obtain a loan without the consent of the limited partner. (FAC ¶ 27.)

Plaintiff alleges other improper conduct by Ozawa: other refusals to agree to financing arrangements to fund the resort; unilateral assumption of direct involvement in resort management and operations including conducting staff meetings, personnel decisions, employee compensation changes; changes to resort property without plaintiff’s consent or permits; representing himself as the “manager” or “owner” without plaintiff’s knowledge or permission; taking control of accounting records; refusing to provide accounting information to third parties related to a potential sale of the resort; refusing to cooperate with plaintiff to hire a qualified general manager; and refusing to consent to the hiring of a listing agent. (FAC ¶¶ 25, 29-32.) Plaintiff alleges this conduct was intended to drive the value of the resort down so Ozawa could purchase it at a fire sale price. (FAC ¶ 33.)

Plaintiff’s FAC includes five causes of action: breach of limited partnership agreement, breach of fiduciary duty, breach of duty of good faith and fair dealing, declaratory relief, and an accounting.

Ozawa demurs to the first four causes of action on the grounds they fail to state sufficient facts and the complaint fails to establish standing. (Code Civ. Proc., § 430.10, subd. (e).)

II. LEGAL STANDARDS

For purposes of a demurrer, all properly pled facts and inferences from expressly alleged facts are deemed true. (Sheehan v. San Francisco 49ers, Ltd. (2009) 45 Cal.4th 992, 998; Cundiff v. GTE Cal., Inc. (2002) 101 Cal.App.4th 1395, 1405.) If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer. “[W]e are not limited to plaintiffs’ theory of recovery in testing the sufficiency of their complaint against a demurrer, but instead must determine if the factual allegations of the complaint are adequate to state a cause of action under any legal theory.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.) To

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survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged. (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal. 4th 861, 872.) The complaint is to be given a reasonable interpretation and read in context. (See Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)

III. DISCUSSION

A. Plaintiff’s standing

Defendant first argues that plaintiff lacks standing to bring these causes of action since they are derivative claims belonging to the partnership, not direct claims belonging to Benchland Partners. He contends that all the alleged harm is incidental to plaintiff and that the FAC only alleges direct harm to Seascape Resort Ltd., not plaintiff. Defendant argues that the alleged injuries are not unique to plaintiff – that had it not infused money into Seascape Resorts Ltd. to support resort operations, Seascape Resort Ltd. would still have suffered alleged harm and therefore, the gravamen of the injury is to Seascape Resorts, and a derivative action is necessary, relying on Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108. (Reply at 5.)

“In determining whether an individual action as opposed to a derivative action lies, a court looks at ‘the gravamen of the wrong alleged in the pleadings.’” (Paclink Communications Internat. v. Sup. Ct. (2001) 90 Cal.App.4th 958, 965-966 [“A contextual reading of their complaint makes clear that they are not suing based upon a claim that as members of the LLC they were entitled to a distribution which was not made, but instead are suing for financial injury caused by fraudulent transfer of the company’s assets.”].) Sustaining a demurrer without leave to amend was proper, where the complaint actually alleged a derivative suit, for which the plaintiff lacked standing, because the corporation suffered the alleged harm, and should receive the benefit of any recovery, rather than stockholders. (Schuster v. Gardner (2005) 127 Cal.App.4th 305, 318.)

Here, the gravamen of the FAC alleges that plaintiff suffered directly by the following conduct: Ozawa’s tortious behavior caused it direct damages, attorneys’ fees and costs, and personal guarantees of its members (FAC ¶¶ 28, 39), Ozawa improperly assumed direct control of the resort without plaintiff’s knowledge or consent, and excluded plaintiff from those business activities (FAC ¶ 29), Ozawa prevented plaintiff from accessing the resort’s accounting records (FAC ¶¶ 30, 37), and Ozawa authorized changes to resort property without plaintiff’s consent (FAC ¶ 37). So, the FAC is sufficiently pled in support of Plaintiff’s individual damages. (Cf., Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, 1257-1258 [court allowed minority shareholder to bring a personal action alleging a majority stockholder’s breach of a

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fiduciary duty to minority stockholders, which resulted in the majority stockholder’s retaining a disproportionate share of the corporation’s ongoing value.].)

At the demurrer stage, plaintiff has alleged sufficient facts establishing standing and the Court overrules the demurrer.

B. First cause of action: breach of limited partnership agreement

The elements of a cause of action for breach of a partnership agreement are: (1) the partnership agreement; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) the resulting damages to plaintiff. (Agam v. Gavra (2015) 236 Cal.App.4th 91, 104.) Plaintiff has satisfied these elements – the partnership agreement is attached to the complaint, plaintiff alleges it performed all obligations under the agreement, defendant’s breaches are listed (and discussed above), and plaintiff alleges damages (forced to invest its own funds to maintain resort operations and personal guarantees by its partners securing the loan). (FAC ¶¶ 10-11, 35-39.)

Defendant’s arguments all go to facts beyond the complaint. Defendant argues plaintiff has failed to prove performance, breach and damages, but that is not the standard on demurrer. For example, defendant’s contentions related to plaintiff’s failure to provide defendant with material information related to the refinance and their own breach of the agreement all go beyond the FAC. (Def. Memorandum at 7-9.)

For the purposes of a demurrer, the court must assume the truth of the allegations pleaded. The allegations here are sufficient and the Court overrules the demurrer as to the first cause of action for breach of agreement.

C. Second cause of action: breach of fiduciary duty

The elements for a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach. (Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1101.) A fiduciary duty owed by each partner arises from a partnership. (Agam v. Gavra, supra, 236 Cal.App.4th at 112-113.)

Defendant argues plaintiff fails to meet the first element, existence of a duty. Ozawa claims he owes no duty to plaintiff since they did not transact business; that he was a limited partner only and general partner obligations only arise to third parties, citing Corporations Code section 15903.05, subd. (a).

The Court is not persuaded. The crux of plaintiff’s allegations is that Ozawa improperly stepped into the role of general partner and thereafter acted as the general partner in excluding other partners, preventing access to key financial documents, and making decisions related to

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property and personnel of the resort without actually having the authority to do so. On demurrer, the Court finds the allegations are sufficient to allege breach of fiduciary duty.

D. Third cause of action: breach of duty of good faith and fair dealing

“The covenant of good faith and fair dealing implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349.) “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.... [T]he only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.” (Careau & Co. v.

Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394-95.) To recover in tort for breach of the implied covenant, the defendant must “have acted unreasonably or without proper cause.” (Ibid., citations and italics omitted.)

Plaintiff pleads this cause of action in the alternative; that if the Court determines that Ozawa did not act as a general partner of the resort (in his capacity as a limited partner), he was nonetheless obligated to discharge duties to the partnership and other partners consistent with the duty of good faith and fair dealing. Plaintiff has alleged facts that support Ozawa’s failure to deal in good faith (FAC ¶¶ 16-33, 46) and the Court overrules the demurrer as to this claim.

E. Fourth cause of action: declaratory relief

To state a cause of action for declaratory relief, the pleading must establish the following elements: “(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to the rights or obligations of a party.” (Lee v. Silveira (2016) 6 Cal.App.5th 527, 546.)

Defendant’s argument here is also outside the four corners of the FAC. He claims he has no interest in being a general partner and therefore there is no active controversy or real dispute. However, plaintiff’s allegations establish that a real dispute exists and the Court overrules the demurrer to the fourth cause of action for declaratory relief.

IV. REQUESTS FOR JUDICIAL NOTICE

Defendant Ozawa’s initial request:

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Exhibit A, first amended complaint in this action: Denied, the Court need not take judicial notice of its own record.

Exhibit B, Certificate of Limited Partnership, filed October 8, 2023: Granted as to the existence of the document only, not its import or effect.

Defendant Ozawa’s reply request:

Exhibits A and B, plaintiff’s notice and memorandum in support of its ex parte application of March 12, 2025: Denied, the Court need not take judicial notice of its own record.

Plaintiff’s request:

Exhibit A, order granting mandatory injunction, March 14, 2025: Denied, the Court need not take judicial notice of its own record.