DL Venture Montclair, LLC v. Mintshow International, LLC

(Compl. ¶ 10.)

Center’s common area maintenance manager, the Defendant, breached its fiduciary duties

committed fraud resulting in damages to Center and Plaintiff. As an example, Defendant hired

security services to protect its mostly vacant building from vagrants only to charge all of the

entity owners for the security services as a CAM that only benefitted Defendant. In addition,

Defendant has engaged in (a) improper charges to the reserve in violation of the CC&Rs; (b)

failed to provide annual reconciliation statements and estimates in a timely manner; (c) provide

improper estimates and enforce monthly charges in violation of CC&Rs; (d) imposed improper

and unauthorized CAM charges; and (e) failed to promptly notify property owners of changes to

property management. (Compl. ¶ 11.)

Now before the Court is Defendant’s general and special demurrer to Plaintiff’s first

through sixth and ninth causes of action and motion to strike allegations from Plaintiff’s

Complaint concerning Center. Plaintiff filed oppositions. Defendant filed replies.

DISCUSSION AND ANALYSIS

Good Faith Meet and Confer:

Before filing a demurrer and moving to strike, the moving party shall meet and confer, at

least 5 days before a responsive pleading is due, in person or by telephone, with the opposing

party to see if a resolution can be reached on the objections to the pleading. (Code Civ. Proc., §§

430.41, subd. (a), and 435.5, subd. (a)(1)-(2).) With the demurrer and strike motion, the moving

party shall submit a declaration stating (a) how the parties met and conferred and no resolution

was reached, or (b) the opposing party failed to respond to the demurring party’s meet and confer

requests or failed to meet and confer in good faith. (Code Civ. Proc., §§ 430.41, subd. (a)(3), and

435.5, subd. (a)(3).)

Defendant has filed the declarations of attorney Vigen Stepanyan reflecting compliance

with the meet and confer requirements of sections 430.41 subdivision (a)(3) and 435.5, subd.

(a)(3) prior to filing its demurrer and motion to strike. (Stepanyan Decls. ¶¶ 2-3, Exh. 1.)

Authority for Demurrer:

A demurrer can be used only to challenge defects appearing on the face of the pleading

under attack, or from matters outside the pleading which are judicially noticeable. (Blank v.

Kirwan (1985) 39 Cal.3d 311, 318.) The face of the complaint includes matters shown in exhibits

attached to the complaint and incorporated by reference. (Frantz v. Blackwell (1987) 189

Cal.App.3d 91, 94.) No other extrinsic evidence can be considered. (Ion Equipment Corp. v.

Nelson (1980) 110 Cal.App.3d 868, 881.)

For the purpose of testing the sufficiency of the cause of action, the demurrer admits the

truth of all material facts properly pleaded, i.e., ultimate facts alleged, but not contentions,

deductions, or conclusions of fact or law. (Adelman v. Associated Int'l. Ins. Co. (2001) 90

Cal.App.4th 352, 359.)

A general demurrer challenges a complaint for failure to state a cause of action under

Code of Civil Procedure section 430.10, subdivision (e). It is granted only where the facts

alleged on the face of the complaint fail to state any valid claim entitling the plaintiff to relief

against the demurring defendant.

A complaint may also be challenged on demurrer for uncertainty. (Code Civ. Proc., §

430.10, subd. (f).) A special demurrer for uncertainty is sustained only where the complaint is

unfairly vague or so ambiguous or unintelligible the defendant cannot reasonably respond i.e.,

determine the issues to be admitted or denied. (Khoury v. Maly’s of Calif., Inc. (1993) 14

Cal.App.4th 612, 616.) “A demurrer for uncertainty is strictly construed, even where a

complaint is in some respects uncertain, because ambiguities can be clarified under modern

discovery procedures.” (Id.)

If the complaint fails to state a cause of action, the court must grant the plaintiff leave to

amend if there is a reasonable possibility that the defect can be cured by amendment. (Blank v.

Kirwan (1985) 39 Cal.3d 311, 318.) On the other hand, “a trial court does not abuse its

discretion by sustaining a general demurrer without leave to amend if it appears from the

complaint that under applicable substantive law there is no reasonable possibility that an

amendment could cure the complaint’s defect.” (Heckendorn v. City of San Marino (1986) 42

Cal.3d 481, 486.)

Analysis:

Defendant’s Demurrer for Uncertainty Pursuant to Code of Civil Procedure section 430.10, subdivision (f):

The court overrules Defendant’s Demurrer to Plaintiff’s Complaint on the grounds of

uncertainty because, based upon a review of Plaintiff’s Complaint and taking the allegations of

Plaintiff’s Complaint as a whole, Plaintiff’s Complaint is not so vague or so ambiguous or

unintelligible that Defendant cannot reasonably respond or determine the issues to be admitted or

denied, and any uncertainties can be ascertained in discovery.

Plaintiff’s First Cause of Action for Fraud and Deceit:

The elements of intentional misrepresentation are: “(1) a false representation, actual or

implied, or the concealment of a matter of fact, material to the transaction, made falsely; (2)

knowledge of the falsity, or statements made with such disregard and recklessness that

knowledge is inferred; (3) intent to induce another into relying on the representation; (4) reliance

by one who has a right to rely; and (5) resulting damage.” (Pearson v. Norton (1964) 230

Cal.App.2d 1, 7.)

“[T]he elements of an action for fraud and deceit based on concealment are: (1) the

defendant must have concealed or suppressed a material fact, (2) the defendant must have been

under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally

concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must

have been unaware of the fact and would not have acted as he did if he had known of the

concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact,

the plaintiff must have sustained damage.” (Lovejoy v. AT&T Corp. (2004) 119 Cal.App.4th 151,

158 (Lovejoy).)

“Concealment is a term of art which includes mere nondisclosure when a party has a duty

to disclose.” (Lovejoy, supra, 119 Cal.App.4th at p. 158.)

Defendant argues that the fraud claim lacks specificity and fails to plead reliance.

First, the misrepresentation is specifically identified. The Complaint alleges that,

beginning in or about January 2022, Defendant hired security services for its own vacant parcel

and then represented to the owners that the service was “for the benefit of Center and all of the

common areas,” in order to shift its private expense onto the other owners. (Compl. ¶¶ 30 & 46.)

Defendant knew them to be false and made them with the intention to deceive and defraud

Plaintiff and to induce Plaintiff to act in reliance. (Compl. ¶ 47.) That is the “how, when, where,

to whom, and by what means” the rule in Lazar v. Superior Court (1996) 12 Cal.4th 631, 645,

requires.

Second, the specificity requirement is relaxed here. The rule of particularity is not applied

mechanically where, as here, the defendant must necessarily possess full information.

(Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 217;

Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 158.) Defendant is the

sole manager in exclusive control of the books, vendor contracts, and billing for the Center and

for the common area. (Compl. ¶¶ 28, 31, and 39.) The identities of the individuals who prepared

and transmitted the statements, and the precise dates of each billing, are matters presumptively

within Defendant’s knowledge Plaintiff should not be required to plead, with the manager’s own

internal detail, facts the manager alone possesses and has refused to disclose despite repeated

demands. (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230,

1242, 160 Cal.Rptr.3d 718, 728 (the court held that the tenant sufficiently pleads the fraud claim

as against shopping center landlord in connection with its charge of CAM, including reasonable

reliance and misrepresentation, which is strikingly similar to this case).)

Third, Plaintiff pleaded sufficient reliance. The Complaint alleges that Plaintiff was

induced to, and did, pay the improperly imposed CAM charges, including security service

charges, resulting in quantified damages. (Compl. ¶¶ 35-38 and 47-48.) (Thrifty Payless, Inc. v.

The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1242.)

Defendant’s attack on the “information and belief” reference to “other nefarious conduct”

(Compl. ¶ 45) does not reach the cause of action, which is anchored in the specifically pleaded

fraud claim. A demurrer does not lie to a portion of a cause of action. (PH II, Inc. v. Superior

Court (1995) 33 Cal.App.4th 1680, 1682-1683.)

Therefore, the Court overrules Defendant’s demurrer to Plaintiff’s first cause of action

for fraud and deceit.

Plaintiff’s Second Cause of Action for Breach of Contract:

“It is hornbook law that the essential elements to be pleaded in an action for breach of

contract are: (1) the contract; (2) plaintiff's performance of the contract or excuse for

nonperformance; (3) defendants' breach; and (4) the resulting damage to plaintiff.” (Lortz v.

Connell (1969) 273 Cal.App.2d 286, 290.)

Here, the contract is the recorded CC&R, attached to the Complaint, which binds

Defendant as a successor-in-interest and as the Center’s Manager. (Compl. ¶¶ 16-17 & 50-51,

Exh. A.) Contrary to the Demurrer’s assertion that Plaintiff never identifies the breaching

conduct, the Complaint points out that the CC&R provides for on-site security to be provided

only for the Common Area, yet Defendant hired security for its vacant space in its own building

without providing security for the remaining buildings, yet charged all four parcel owners.

(Compl. ¶¶ 52-53.) The Complaint further alleges breach by improperly charging reserve fees

and charges in violation of the CC&R’s estimate-and-reconciliation provisions (Article IV), and

by failing to provide the required annual estimates and reconciliations. (Compl.,

¶¶ 28-38.) Plaintiff also pleaded resulting damages. (Compl. ¶ 55.)

Therefore, the Court overrules Defendant’s demurrer to Plaintiff’s second cause of action

for breach of contract.

Plaintiff’s Third Cause of Action for Breach of Fiduciary Duty and Fourth Cause of Action for Self-Dealing:

In order to plead a cause of action for breach of fiduciary duty, the plaintiff must show

the existence of a fiduciary relationship, its breach, and damage proximately caused by that

breach. (Oates v. City of Lincoln (2001) 93 Cal.App.4th 25, 35.; City of Atascadero v. Merrill

Lynch, Pierce, Fenner & Smith (1998) 68 Cal.App.4th 445, 483.)

Defendant argues that the CC&R is a mere “arm’s length” agreement that creates no

fiduciary duty. Such argument depends on a disputed interpretation of the contract and a series of

inferences drawn in Defendant’s favor. However, on demurrer, the Court must draw those

inferences in Plaintiff’s favor. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

As acknowledged by Defendant in its moving papers, a fiduciary or confidential

relationship arises “where a person reposes trust and confidence in another and the person in

whom such confidence is reposed obtains control over the other person’s affairs.” (Recorded

Picture Co. v. Nelson Entertainment, Inc. (1997) 53 Cal.App.4th 350, 370.) A fiduciary duty also

arises where one party knowingly undertakes to act on behalf of and for the benefit of another.

(City of Hope Nat. Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 386.)

Here, the Complaint alleges such a relationship: as sole Manager, Defendant collects,

holds, and administers the other owners’ money, controls the common areas, unilaterally sets and

reconciles their charges, and is obligated to act “for the mutual benefit of all parcel owners” with

“utmost loyalty, due care, disclosure, good faith and fair dealing.” (Compl. ¶¶22, 24, and 57-58.)

A managing party that collects and disburses other owners’ funds in managing another owner’s

properties, occupies a position of trust and control, i.e. a fiduciary.

Critically, whether a confidential or fiduciary relationship exists is “a question of fact”

that cannot be resolved on demurrer. (Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th

1141, 1161; Tri-Continent Internat. Corp. v. Paris Savings & Loan Assn. (1993) 12 Cal.App.4th

1354, 1359.) The various contractual powers Defendant recites do not negate that relationship; at

most they create a factual dispute about the nature of the parties’ dealings, to be resolved on a

developed record.

Self-dealing is a recognized theory of breach of fiduciary duty and is independently

pleaded. Defendant argues that the fourth cause of action for self-dealing merely duplicates the

third cause of action. But duplication is not a ground on which a demurrer must be sustained

where the cause of action otherwise states a claim, and the Court may simply treat the label as

the theory it describes. The fourth cause of action pleads the specific self-dealing transaction at

the heart of this case: Defendant, as a fiduciary, caused the owners to pay for security obtained

for its own vacant premises - “self-dealing by improperly charging Center for their own personal

benefit and gain.” (Compl. ¶¶ 65-67.) That states a claim for breach of the duty of loyalty.

Therefore, the Court overrules Defendant’s demurrer to Plaintiff’s third cause of action

for breach of fiduciary duty and fourth cause of action for self-dealing.

Plaintiff’s Fifth Cause of Action for Unjust Enrichment:

The elements for a claim of unjust enrichment are receipt of a benefit and unjust retention

of the benefit at the expense of another. (Lectrodryer v. SeoulBank (2000) 77 Cal.App.4th 723,

726.)

Unjust enrichment is not a cause of action, however, or even a remedy, but rather a

general principle, underlying various legal doctrines and remedies. (Rutherford Holdings, LLC v.

Plaza Del Rey (2014) 223 Cal.App.4th 221, 231.) It is synonymous with restitution. (Ibid.) It is

construed as a quasi-contract claim seeking restitution. (Id. at pp. 231-232.)

Defendant argues that the existence of the CC&R bars a quasi-contract claim. But a

plaintiff is expressly permitted to plead inconsistent and alternative theories, including breach of

an express contract and quasi-contract, and may do so even where the two cannot ultimately both

succeed. (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1388-1389 (Klein);

Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1402 [alternative and

inconsistent pleading permitted].)

Quasi-contractual restitution is available where the conduct falls outside the contract, or

where the contract is unenforceable, void, or its coverage of the conduct is disputed. (Klein,

supra, 202 Cal.App.4th at pp. 1388-1390.) Here, Defendant itself disputes that the CC&R

authorized the charges at issue and contends the manager owes no enforceable duty, precisely the

circumstance in which an alternative quasi-contract count is proper. Whether Plaintiff will

ultimately elect contract or restitution is a matter for trial, not the pleadings. At the demurrer

stage, dismissing the alternative count is premature.

Therefore, the Court overrules Defendant’s demurrer to Plaintiff’s fifth cause of action

for unjust enrichment.

Plaintiff’s Sixth Cause of Action for Declaratory Relief:

Any person who desires a declaration of his or her rights or duties with respect to

another, or in respect to, in, over or upon property may, in cases of actual controversy relating to

the legal rights and duties of the respective parties, bring an original action or cross-complaint

for a declaration of his or her rights and duties in the premises. (Code Civ. Proc., § 1060.) The

fundamental basis of declaratory relief is the existence of an actual, present controversy over a

proper subject. (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79.) A complaint for declaratory

relief is legally sufficient if it sets forth facts showing the existence of an actual controversy

relating to the legal rights and duties of the respective parties under a written instrument and

requests that these rights and duties be adjudged by the court. (Maguire v. Hibernia Savings &

Loan Soc. (1944) 23 Cal.2d 719, 728.)

As plead, the controversy here is ongoing. The parties have a continuing relationship

under the CC&R, and Defendant continues, month after month, to issue CAM estimates and

billing statements, to charge the disputed security and reserve costs, and to collect a 10% fee -

while Plaintiff continues to dispute whether it owes those amounts going forward. (Compl. ¶¶

35-38, and 76.)

A declaration of the parties’ prospective rights and obligations under the CC&R, whether

the security charges are proper common-area expenses, and whether Plaintiff owes the disputed

dues would “govern the future conduct of the parties,” is permissible even amid an alleged

breach. (Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191

Cal.App.4th 357, 364–366, 372.)

Therefore, the Court overrules Defendant’s demurrer to Plaintiff’s sixth cause of action

for declaratory relief.

Plaintiff’s Ninth Cause of Action for Removal of Manager:

Defendant’s entire attack on the ninth cause of action is built on the receivership statutes

- principally Code of Civil Procedure section 566, subdivision (a), which provides that a party

cannot be appointed receiver. But the gravamen of this cause of action is the removal and

replacement of a self-dealing manager, an equitable remedy. The appointment of a receiver is

pleaded only as an alternative, as the court may deem proper. (Compl. ¶ 87.)

Because the demurrer must be overruled if any relief is available on the facts pleaded

(Sheehan v. San Francisco 49ers, Ltd. (2009) 45 Cal.4th 992, 998), Defendant’s objections to

one form of relief do not defeat the claim.

First, Plaintiff alternatively asks the Court to appoint a receiver “as the court may deem

proper,” which section Code of Civil Procedure section 566, subdivision (a) permits. Plaintiff did

not ask the Court to appoint Plaintiff as a receiver. The bar on a party serving as receiver says

nothing about the Court’s power to remove a manager who is breaching its duties. Second, the

court possesses equitable authority, and Code of Civil Procedure section 564, subdivision (b)(9)

authorizes the appointment of a receiver “in all other cases where necessary to preserve the

property or rights of any party.” (Compl. ¶ 85.) The Complaint alleges years of “neglect,

mismanagement and self-dealing” by a manager who controls the owners’ funds and refuses to

account, which support equitable intervention. (Compl. ¶¶ 86-87.)

Whether the Court ultimately removes Defendant, appoints a neutral receiver, or grant

some other relief is a question for the proof, not the pleadings.

Therefore, the Court overrules Defendant’s demurrer to Plaintiff’s ninth cause of action

for removal of manager.

Authority for Motion to Strike:

Code of Civil Procedure section 436, subdivision (a) states that matters that are

“irrelevant, false or improper” are subject to a motion to strike. “Irrelevant” means any

immaterial allegation in the complaint. Code of Civil Procedure section 431.10, subdivision (b)

defines an immaterial allegation as any of the following:

(1) An allegation that is not essential to the statement of a claim or defense.

(2) An allegation that is neither pertinent to nor supported by an otherwise sufficient claim or defense.

(3) A demand for judgment requesting relief not supported by the allegations of the complaint or cross-complaint.

Additionally, all or part of a pleading that is not drawn or filed in conformity with the

laws of this state, a court rule, or order of the court may be stricken. (Code Civ. Proc., § 436,

subd. (b).)

The grounds to strike shall appear either on the face of the challenged pleading or from

matters that are judicially noticed. (Code Civ. Proc., § 437.) Additionally, the court reads the

allegations as a whole, with all parts in their context, and assumes their truth. (Spielholz v.

Superior Court (2001) 86 Cal.App.4th 1366, 1371; Clauson v. Superior Court (1989) 67

Cal.App.4th 1253, 1255.)

Defendant’s Motion:

Defendant seeks to strike the following allegations based upon Plaintiff’s lack of standing

to represent the Center for damages incurred:

(1) Page 4, ¶ 11, line 9: “resulting in damages to Center.”

(2) Page 9, ¶ 46, line 7: “caused Center . . . to suffer financial damages.”

(3) Page 11, ¶ 60, line 4-5: “By the conduct alleged herein, Defendants repeatedly breach their fiduciary duties to . . . Center.”

(4) Page 11, ¶ 62, line 9-10: “Center . . . have suffered damages in an amount to be proven at trial.”

Defendant’s argument is not a motion to strike argument at all. Its sole theory is that

Plaintiff is not the “real party in interest” and lacks “standing” to assert damages belonging to the

Center, which is a challenge to the legal sufficiency of the claims, which may be raised only by

demurrer. A motion to strike cannot be used as a second demurrer to litigate standing.

Further, to the extent Defendant asserts the allegations are “false,” that contention asks

the Court to disregard the well-pleaded allegations of the Complaint, weigh competing facts, and

decide the merits at the pleading stage. On a motion to strike, the Court must assume the truth of

the Complaint’s allegations and may not consider extrinsic evidence.

Therefore, the Court denies Defendant’s motion to strike in its entirety.

CONCLUSION

Based on the foregoing, the Court rules as follows:

(1) OVERRULES Defendant’s Demurrer to Plaintiff’s Complaint on the grounds of uncertainty, ambiguity, and unintelligible pursuant to Code of Civil Procedure section 430.10, subdivision (f);

(2) OVERRULES Defendant’s demurrer to Plaintiff’s first-sixth and ninth causes of action;

(3) DENIES Defendant’s motion to strike; and

(4) ORDERS Defendant to file an answer to Plaintiff’s Complaint within 20 calendar days from the date of this ruling.

Plaintiff’s counsel is ordered to provide notice.

IT IS SO ORDERED

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