JIPEI (JEFF) WANG, ET AL VS. BKF ENGINEERS, ET AL

August 19, 2026 Law and Motion Calendar Judge Nicole S. Healy Department 28 ________________________________________________________________________ 2:00 PM LINE 3 25-CIV-06776 JIPEI (JEFF) WANG, ET AL VS. BKF ENGINEERS, ET AL

JIPEI (JEFF) WANG JOHN F. DOMINGUE BKF ENGINEERS SAMUEL Y. EDGERTON

DEMURRER TO PLAINTIFFS’ COMPLAINT BY DEFENDANTS, BKF ENGINEERS, FKA BRIAN KANGAS FOULK, GREGORY HURD, DANIEL SCHAEFER, CHRISTOPHER RIDEOUT, ERIC GIROD, JAMES DALLOSTA, JEAN CHEN, BRIAN SCOTT, AND JASON WHITE

TENTATIVE RULING:

Defendants BKF Engineers, fka Brian Kangas Foulk (BKF), Gregory Hurd, Daniel Schaefer, Christopher Rideout, Eric Girod, James Dallosta, Jean Chen, Brian Scott, and Jason White’s Demurrer to each cause of action in plaintiffs Jipei (Jeff) Wang and John Lamon’s Complaint is SUSTAINED with leave to amend as to the individual defendants; and SUSTAINED without leave to amend as to the first cause of action for breach of fiduciary duty as against defendant BKF.

Any amended complaint must be filed within ten (10) days of notice of entry of the formal order.

Defendant BKF is an engineering firm, first formed in 1915. (Complaint, ¶ 14.) Plaintiffs Jipei Wang and John Lamon were employees of BKF for over 30 years. (Id., ¶ 15.) At all relevant times, plaintiffs were non-voting Series B shareholders, each holding 208 shares of BKF stock. (Id., ¶ 16.) Wang retired effective January 5, 2024, and Lamon retired effective March 31, 2024. (Id., ¶ 15.) As shareholders, plaintiffs were each a party to the BKF Engineers’ Amended and Restated Buy-Out Agreement dated November 27, 2023 (Buyout Agreement). (Id., ¶ 17.)

Plaintiffs allege that beginning in early 2023, BKF began communicating with a private equity firm, Long Point Capital, regarding the possible acquisition of the company. (Complaint, ¶ 26.d.) BKF began receiving letters of interest from potential acquirors in mid- 2023. (Ibid.) On November 15, 2023, BKF received a nonbinding letter of intent from Long Point. (Id., ¶ 26.e.) BKF received a second nonbinding letter of intent from Long Point on March 5, 2024. ((Id., ¶ 26.f.) Long Point formed an acquiring entity in July 10, 2024, and the merger closed on August 23, 2024. (Id., ¶¶ 26.h, i.)

Upon their respective retirements, plaintiffs Wang and Lamon each received repayment promissory notes in the principal amount of $191,403.68 for their respective 208 shares of BKF, at a repurchase price of $920.21 per share. Plaintiffs allege that the defendants concealed the merger discussions from them, and that they would have received significantly more value per share under the terms of the sale had they waited to retire. Plaintiffs further allege the language

August 19, 2026 Law and Motion Calendar Judge Nicole S. Healy Department 28 ________________________________________________________________________ in the Buyout Agreement “reasonably implied that BKF Engineers, in good faith, would not seek or approve a sale of all company stock to a third party investor.” (Complaint, ¶¶ 15, 41.)

A. First Cause of Action for Breach of Fiduciary Duty

1. Duty to Disclose – Individual Defendants

The elements of a cause of action for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) breach of fiduciary duty, and (3) resulting damages. (Oasis W. Realty, LLC v. Goldman (2011) 51 Cal.4th 811.) Plaintiffs allege that defendants concealed material information about the potential merger which, if completed, would have increased the value of their Class B shares.

Defendants argue that this cause of action fails because there is no duty to disclose preliminary merger discussions, relying on Eldridge v. Tymshare, Inc. (1986) 186 Cal.App.3d 767 (Eldridge). Plaintiffs maintain that Eldridge is inapplicable to a closely held corporation because that case dealt with a corporation that was listed on the New York Stock Exchange. Defendants respond that Eldridge is applicable to a closely held corporation, pointing to the holding that “‘as a matter of law corporate directors are under no duty to make a public disclosure of merger negotiations until an agreement in principle has been reached.’” (Reply, at p. 3:7-9, quoting Eldridge, supra, at p. 773.)

Plaintiffs have not identified any controlling authority that precludes the application of Eldridge to a closely-held corporation. Further, although directors of a closely-held corporation owe fiduciary duties to minority shareholders (Singhania v. Uttarwar (2006) 136 Cal. App. 4th 416), they owe those duties to all shareholders equally, and not solely to those, like plaintiffs, considering retirement.

Plaintiffs cite the “special facts” doctrine, which provides that the rule of ‘good faith and inherent fairness’ to minority shareholders applies to officers, directors, and controlling shareholders who seek to gain an advantage in the sale or transfer of their controlling block of shares. (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 110 (Jones).) Jones involved a squeeze-out in which the controlling shareholders exchanged their shares with another company, receiving a controlling block of stock for which they created a valuable public market, excluding the plaintiff and other minority shareholders from this opportunity. “The rule that has developed in California is a comprehensive rule of ‘inherent fairness from the viewpoint of the corporation and those interested therein. . . . .

The rule applies alike to officers, directors, and controlling shareholders in the exercise of powers that are theirs by virtue of their position and to transactions wherein controlling shareholders seek to gain an advantage in the sale or transfer or use of their controlling block of shares.” Plaintiffs have not alleged that the directors controlled BKF’s shares, nor what Class or number of shares each director held. Nor have they pled any details concerning the role and knowledge of each director with respect to the merger negotiations.

August 19, 2026 Law and Motion Calendar Judge Nicole S. Healy Department 28 ________________________________________________________________________ Plaintiffs also cite Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412, which applies the “special facts” doctrine to fraudulent inducement claims by a shareholder. Hobart states that “[i]t would be illogical to impose liability for silence while excusing deliberate false representations, and it follows that the officer owes a duty of complete honesty in any disclosure which he makes, . . .” (Id., at p. 433; see also Taylor v. Wright (1947) 69 Cal.App.2d 371, 381, cited by plaintiffs and holding that directors who secretly acquired stock from minority shareholder had a duty to disclose facts including regarding the actual value of the stock.) The duty to disclose is discussed at Section C, below.

Here, plaintiffs have not pled facts showing that the majority shareholders and/or the directors schemed to advantage themselves, and possibly other Class A shareholders, to the detriment of Class B shareholders or other minority shareholders including plaintiffs. Indeed, they allege that, following the acquisition “all of the Directors, most of them Class “A” shareholders, received a significantly higher payout” than plaintiffs. (Complaint, ¶ 28.) The complaint is unclear as to who the Class A and other Class B shareholders were, and how that affected the merger negotiations.

Finally, plaintiffs have not address whether they contend BKF’s directors should have disclosed the negotiations with Long Point to plaintiffs, for example, by telling them not to retire for months after they actually did, without breaching their fiduciary duties to BKF and the other shareholders.

Accordingly, as to the individual defendants, therefore, this cause of action is SUSTAINED with leave to amend.

2. Fiduciary Duty - BKF

Plaintiffs had pled their cause of action for breach of fiduciary duty against all defendants. Defendants argue that BKF, as a corporate entity, does not owe any fiduciary duty. Officers, directors, and controlling shareholders owe a fiduciary duty to the corporation and its other shareholders. (See Jones v. H. F. Ahmanson & Co., (2009) 1 Cal. 3d 93; Berg & Berg Enters., LLC v. Boyle (2009) 178 Cal. App. 4th 1020.) No authority holds that a corporate entity itself owes a fiduciary duty to shareholders under California law.

The Demurrer is therefore SUSTAINED without leave to amend as to this cause of action as alleged against the corporate defendant, BKF Engineers.

B. Second Cause of Action for Breach of Covenant of Good Faith and Fair Dealing

Under California law, the implied covenant of good faith and fair dealing is implied into every contract. To prevail on a claim for breach of this covenant, a plaintiff must plead and prove six essential elements: (1) the existence of a contract between plaintiff and defendant; (2) plaintiff’s performance of all or substantially all contractual obligations, or excuse for nonperformance; (3) that all conditions required for defendant’s performance occurred or were excused; (4) that defendant’s conduct prevented plaintiff from receiving the benefits under the

August 19, 2026 Law and Motion Calendar Judge Nicole S. Healy Department 28 ________________________________________________________________________ contract; (5) that defendant did not act fairly and in good faith; and (6) that defendant’s conduct harmed plaintiff. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371; Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230.)

Defendants argue that this cause of action fails because plaintiffs complain of the sale of BKF to a third party, which is conduct that is expressly allowed by the Buyout Agreement. Defendants further argue that plaintiffs have not alleged a breach of the terms of the Buyout Agreement is evidence of the weakness of this claim, however, a cause of action for breach of the covenant of good faith and fair dealing is independent of one for breach of contract. “If there exists a contractual relationship between the parties, as was the case here, the implied covenant is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated in the contract.” (Racine & Laramie Ltd v. Dept. of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1032.)

The terms of the Buyout Agreement, insofar as they are alleged in the Complaint, do not “expressly” allow for the sale of BKF to a third party. Rather, plaintiffs allege the language in the Buyout Agreement “reasonably implied that BKF Engineers, in good faith, would not seek or approve a sale of all company stock to a third party investor.” (Complaint, ¶¶ 15, 41.)

Plaintiffs have not attached the Buyout Agreement to the Complaint, which is incorporated into the Complaint by reference. And although defendants attached the plaintiffs’ 2023 Buyout Agreements to their meet and confer declaration, they did not seek judicial notice of the agreements. (See Complaint, ¶¶ 17-24, 39-41; Declaration of Arman Mashoof, exh. 1, and exhs, B&C thereto.) Neither party addressed the Buyout Agreement in any detail.

However, even the Buyout Agreement provisions cited by plaintiffs in support of their claim that BKF impliedly agreed not to sell to a third party, do not actually support that contention.

Instead, they read as follows:

It is the desire of the parties hereto to assure the continuity of the present successful and harmonious management of Corporation. Shareholders recognize that to accomplish such objective they should restrict the transfer of the stock of Corporation and should provide a program for the repurchase of the stock of Corporation owned by a Shareholder in the event of Shareholder’s death, permanent disability, or other termination of Shareholder’s employment with Corporation.

It is further the desire of the Shareholders to restrict the ownership of the stock of Corporation to active management and associate employees of the Corporation and to provide a means of selling stock to other key employees of the Corporation.

(Complaint, ¶¶ 17.C, D.)

August 19, 2026 Law and Motion Calendar Judge Nicole S. Healy Department 28 ________________________________________________________________________ Those provisions are not promises, they are expressions of “desire.” Moreover, they limit the sale of shares by shareholders, and not the sale of the entire company to a third party.

Accordingly, the Demurrer to this cause of action is therefore SUSTAINED with leave to amend.

C. Third Cause of Action for Fraud and Deceit – Suppression of Fact

To prevail on a cause of action for fraud and deceit based on suppression of fact, a plaintiff must establish five elements: “(1) concealment or suppression of a material fact; (2) by a defendant with a duty to disclose the fact; (3) the defendant intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would have acted differently if the concealed or suppressed fact was known; and (5) plaintiff sustained damage as a result of the concealment or suppression of the material fact.” (Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 40 (Rattagan); Civ. Code, § 1709.)

Defendants argue that they owed no duty of disclosure to plaintiffs as a matter of law. Plaintiffs have not alleged that defendants made partial disclosures, which would have triggered an obligation to make a full and fair disclosure of the preliminary merger negotiations. The “rule has long been settled in this state that although one may be under no duty to speak as to a matter, ‘if he undertakes to do so, either voluntarily or in response to inquiries, he is bound not only to state truly what he tells, but also not to suppress or conceal any facts within his knowledge which materially qualify those stated.

If he speaks at all, he must make a full and fair disclosure.’” (Rogers v. Warden (1942) 20 Cal.2d 286, 289; see Marketing West v. Sanyo Fisher (USA) Corp. 6 Cal.App.4th 603, 613; see also Zinn v. Ex-Cell-O Corp. (1957) 148 Cal.App.2d 56, 68-69 [“Mere nondisclosure of facts is ordinarily not enough to constitute fraud, but it may be actionable under certain circumstances. One situation is where the defendant, who has no duty to speak, nevertheless does so. In such a case he is bound to speak truthfully and to speak the whole truth.”].)

Defendants next argue that plaintiffs have not pled facts in support of their fraud claim with the requisite specificity. For fraudulent concealment claims, courts recognize that a key inquiry is whether the defendant, in undertaking to disclose information, intentionally concealed material terms from plaintiff so they would proceed with a transaction. (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 294 [“In some but not all circumstances, an independent duty to disclose is required; active concealment may exist where a party ‘[w]hile under no duty to speak, nevertheless does so, but does not speak honestly or makes misleading statements or suppresses facts which materially qualify those stated.’”], citation omitted.)

Plaintiffs point to their allegations that defendants concealed the fact that the company was being sold to a third-party investor; the Buyout Agreement’s purported objective that the company would not be sold to a third party; and that the shareholders had previously agreed, in connection the 2015, 2019, 2023, Buyout Agreements, and in 2018-2019 meetings, to undervalue

August 19, 2026 Law and Motion Calendar Judge Nicole S. Healy Department 28 ________________________________________________________________________ their own stock for the longterm benefit of the company. (See, e.g., Complaint ¶¶ 17, 22-23, 45.)

Defendants also argue that plaintiffs have not alleged that they were induced to retire. Plaintiffs contend that defendants kept the intention to sell and the negotiations to sell BKF secret knowing “that Plaintiffs reasonably would rely on the recitals to the [Buyout Agreement], the company’s long-standing policy of restricting any stock sales to outside parties, and the mutually understood good-faith purpose of keeping share repurchase prices low for the benefit of the company, and ... that disclosing to Plaintiffs the potential for an imminent third-party stock sale would likely cause them to delay their retirements and receive a greater price per share commensurate with market value...” (Complaint, ¶ 28.)

Although plaintiffs refer to the acquisition as “imminent,” BKF received nonbinding letters of intent from Long Point on November 15, 2023, and March 5, 2024 (id., ¶¶ 26.g.f.) and the deal did not close until August 23, 2024. (Id., ¶ 26.i.) Even based on this bare-bones discussion of the merger negotiations, and without any detailed discussion of the deal points or contingencies, it is difficult to see that the merger was “imminent” when either plaintiff retired.

The demurrer to this cause of action is SUSTAINED with leave to amend.

If the tentative ruling is uncontested, it shall become the order of the court. Thereafter, defendants’ counsel shall prepare a written order consistent with the court’s ruling for the court’s signature, providing written notice of the ruling to all parties who have appeared in this action, pursuant to California Rules of Court, Rule 3.1312 and Local Rule 3.403(b)(iv), which states in part that the “prevailing party on a tentative ruling is required to prepare a proposed order repeating verbatim the tentative ruling” (emphasis added). The order should be e-filed only, do not email or mail a hard copy to the court.