Maher Fakhouri v. Tareq Fakhouri

The demurrer by Cross-Defendants Mazen Fakhouri (“Mazen”), Fawzi Habhab (“Fawzi”) and Petra Accounting and Consulting Group, Inc. (“Petra”) is overruled.

Factual and Procedural Background

Maher Fakhouri (“Maher”) filed his initial Complaint against Tareq Fakhouri (“Tareq”) on October 4, 2023. Maher alleged that he is the majority owner, CEO and a director of MQM, Inc. (“MQM”) and Zanoon, Inc. (“Zanoon”), and that Tareq is a minority owner, Treasurer and CFO, and a director of MQM and Zanoon. MQM operates the Crepevine restaurant in Santa Rosa and Zanoon operates the Crepevine restaurant in San Rafael. Maher further alleged that Tareq has embezzled funds and assets belonging to Maher and engaged in various schemes to launder the money wrongfully taken from Maher, such as falsely representing that the restaurants were in poor financial health such that Maher would not receive any distributions and influencing employees to lie for him to cover up his embezzlement.

On November 30, 2023, Tareq filed a Cross-Complaint against Maher, Maher’s brother Mazen Fakhouri (“Mazen”), and CPA Fawzi Habhab (“Fawzi”), naming Zanoon, MQM and Saltio, Inc., which owns another restaurant, as nominal cross-defendants. Tareq alleged that it is Maher who has embezzled money from the corporations and has taken a disproportionate amount of distributions without accounting for it. Tareq also alleged that Maher has failed to pay Tareq’s agreed-upon salary and has purported to appoint three of his close friends as directors. Tareq asserted both derivative claims on behalf of the corporations and individual claims.

Tareq filed a First Amended Cross-Complaint on January 31, 2024, adding Petra Accounting and Consulting Group, Inc. (“Petra”), through which Fawzi allegedly does business, as a cross-defendant. Tareq also added causes of action for civil theft against all cross-

defendants derivatively and individually and causes of action for fraud against Fawzi derivatively and individually.

On May 16, 2024, the Court entered an Order sustaining Maher’s demurrer to Tareq’s extortion claim without leave to amend, and to Tareq’s derivative claims for breach of fiduciary duty and civil theft on behalf of Saltio with leave to amend. Tareq filed a Second Amended Cross-Complaint on June 5, 2024 which added factual allegations to the derivative claims addressed in the Court’s Order.

On July 19, 2024, Zanoon filed a motion to consolidate this action with another action pending in Department E, San Rafael Properties, LLC v. Zanoon, Inc., Case No. 0002145 (the “Lease Action”). The Lease Action involves a single cause of action for declaratory relief arising out of Zanoon’s alleged default under a lease amendment for the San Rafael Crepevine restaurant. On October 24, 2024, the Court entered an Order denying the motion, finding no common questions of law or fact.

Tareq filed a Third Amended Cross-Complaint on November 19, 2024, pursuant to a Stipulation and Order filed October 29, 2024, which added causes of action for wrongful termination against the three corporations, defamation against Maher, and violation of Business & Professions Code Section 5058 against Fawzi and Petra.

A bench trial was held in the Lease Action on March 24-27, 2025. On August 4, 2025, the Court entered judgment finding the first amendment to the original lease dated July 21, 2022 valid and enforceable.

On March 2, 2026, Maher filed the operative Third Amended Complaint, alleging claims for conversion, receipt of stolen property, intentional misrepresentation, fraudulent concealment, breach of fiduciary duty, breach of contract, breach of the covenant of good faith and fair dealing and financial elder abuse.

On April 22, 2026, Tareq filed the operative Fourth Amended Verified Cross-Complaint (“FAXC”), pursuant to a Stipulation and Order filed April 21, 2026, alleging the following causes of action: 1) Derivative Breach of Fiduciary Duty on behalf of Zanoon and MQM (against Maher, Fawzi, and Mazen); 2) Individual Breach of Fiduciary Duty (against Maher, Fawzi, and Mazen); 3) Derivative Professional Negligence on behalf of Zanoon and MQM (against Fawzi); 4) Individual Professional Negligence (against Fawzi); 5) Involuntary Dissolution of Zanoon; 6) Involuntary Dissolution of MQM; 7) Derivative Civil Theft (Penal Code § 496) on behalf of Zanoon and MQM (against Maher, Fawzi, and Mazen); 8) Individual Civil Theft (Penal Code § 496) (against Maher, Fawzi, and Mazen); 9) Derivative Fraud on behalf of Zanoon and MQM (against Fawzi); 10) Individual Fraud (against Fawzi); 11) Wrongful Termination (against MQM and Zanoon).

Cross-Defendants Mazen, Fawzi and Petra now demur to the operative 4AXC.

Discussion

I. Procedural Issues

The Court draws Cross-Defendants’ attention to Local Rule 2.8(C)2, which requires attachment of the operative pleading as an exhibit to the demurrer.

Defense counsel’s declaration in support of the demurrer does not explicitly show that she complied with the meet and confer requirements of Code of Civil Procedure Section 430.41, which requires the demurring party to meet and confer “in person or by telephone.” (See Code Civ. Proc. § 430.41(a); Declaration of Katy D. Young, ¶ 6.) Notwithstanding the failure to strictly comply with the meet and confer requirements, the court’s ruling is not based upon the same. (Code of Civ. Proc., § 430.41(a)(4).)

II. Standard on Demurrer

The function of a demurrer is to test the legal sufficiency of the challenged pleading. (Hernandez v. City of Pomona (1996) 49 Cal.App.4th 1492, 1497.) As a general rule, in testing a pleading against a demurrer, the facts alleged in the pleading are deemed to be true, however improbable they may be. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604.) The court gives the pleading a reasonable interpretation by reading it as a whole and all of its parts in their context. (Moore v. Regents of Univ. of Calif. (1990) 51 Cal.3d 120, 125.)

In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) 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.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)

III. Merits

A. Statute of Limitations

Mazen challenges the first and second causes of action for Breach of Fiduciary Duty (derivative and individual) as barred by the four-year statute of limitations (Code Civ. Proc., § 343) and the seventh and eighth causes of action for Civil Theft as barred by the three-year limitations period (Code Civ. Proc., § 338(c)). A demurrer based on a statute of limitations defense must clearly and affirmatively show that the claim is barred. (Lockley v. Law Office of Cantrell, Green, Kekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 881.) “It is not sufficient that the complaint might be barred.” (Roman v.

County of Los Angeles (2000) 85 Cal.App.4th 316, 324.) “If the dates establishing the running of the statute of limitations do not clearly appear in the complaint, there is no ground for general demurrer. The proper remedy ‘is to ascertain the factual basis of the contention through discovery and, if necessary, file a motion for summary judgment . . . .’” (Id. at 324-325 [internal citation omitted].)

The pleading does not clearly and affirmatively show a time-bar. The 4AXC alleges present-tense and ongoing conduct that, drawn favorably to Tareq, falls within the limitations windows measured from the October 4, 2023 filing. (See for example, 4AXC ¶¶ 35, 43, 44, 46- 48, 95, 98, 104, 107, 123-127.) Cross-Defendants themselves concede the challenged paragraphs “are not given any temporal specificity.” (Mtn., 4:6-17.) However, a pleading silent as to dates

does not affirmatively establish accrual outside the limitations period; it establishes only that the question cannot be answered at the pleading stage. That ends the inquiry on demurrer.

To the extent the demurrer asserts that the parties have conducted extensive written discovery and Mazen’s deposition, which purportedly “confirms that all claims against Mazen are outside the statute of limitations and must be dismissed,” this argument is not proper on demurrer. (Id.) That is an evidence based argument and the Court may not consider the Declaration of Katy Young, the written discovery, or what Mazen’s deposition did or did not produce at the pleadings stage. The demurrer is overruled.

B. Failure to State Facts Sufficient to Constitute a Cause of Action

First and Second Causes of Action for Breach of Fiduciary Duty

“The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.” (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 483.) “In order to plead a cause of action for breach of fiduciary duty, there must be an adequate showing of each of these elements.” (Id.) Depending on the circumstances, a cause of action for breach of fiduciary duty can be based upon either negligence or fraud. (Knutson v.

Foster (2018) 25 Cal.App.5th 1075, 1093.) An aiding-and-abetting breach-of-fiduciary-duty claim against a nonfiduciary requires allegations of a primary breach, the defendant’s actual knowledge of that specific breach, substantial assistance or encouragement, and resulting harm. (Casey v. United States Bank Nat’l Ass’n (2005) 127 Cal.App.4th 1138, 1144–1145.) Generic allegations of awareness of wrongdoing do not satisfy the actual-knowledge element; the pleading must identify the specific wrong the defendant knew of and what the defendant did to assist it. (Id. at p. 1145–1146.)

Maher is alleged to have breached his fiduciary duties by, among other things, “making unauthorized payments to himself” and embezzling corporate funds. (4AXC, ¶¶ 53, 65.) Beyond the element-tracking allegation that Mazen “knew that Maher intended to breach his fiduciary duties” (Id. ¶ 56), the 4AXC identifies concrete breaches Mazen knew of and helped effect. Maher is alleged to have caused the corporations, “with the assistance and encouragement of Mazen,” to cease paying Tareq’s $12,000 monthly salary “in March 2023.” (Id. ¶ 43.)

Maher is further alleged to have “delegat[ed] his decision-making as a director to Mazen, who has aided in such breaches ... [by] ensuring the continued transfer of funds from the Corporations to an entity named Crepevine Ranch, Inc.,” a co-owned entity, with “no proper accounting of the transactions.” (Id. ¶ 44.) Mazen is alleged to have “gave substantial assistance or encouragement to Maher ... by allowing and aiding in fiduciary breaches including, among other things, Maher’s embezzlement of funds from the Corporations.” (Id. ¶¶ 57, 69.)

These paragraphs supply particular breaches, dates, and mechanisms, not just conclusions. The corporations and Tareq are alleged to have suffered damages as a direct and proximate result. (4AXC ¶ 58.)

Cross-Defendants argue that because the gravamen is embezzlement, fraud particularity attaches under the anti-relabeling principle of Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 25.) Even applying that overlay, the 4AXC identifies the mechanism (Crepevine

Ranch transfers; March 2023 salary cessation), the timing, and Mazen’s role as delegated decision-maker and advisor. (4AXC, ¶¶ 44, 98, 99.)

Cross-Defendants have not carried their burden to show facial insufficiency. (Blank, supra, 39 Cal.3d at p. 318.)

The demurrer to the First and Second Causes of Action against Mazen on pleadingsufficiency grounds is overruled.

Fawzi and Petra also demur to these claims on the ground that the 4AXC does not allege facts establishing that Fawzi aided Maher in his breach of fiduciary duty. (Ntc. of Dmr., 2:20- 3:2.) However, in reply, Fawzi and Petra state they withdraw the demurrer on this ground. (Reply, 8:2-4.) Therefore, it is not adjudicated.

Seventh and Eighth Causes of Action for Civil Theft

The elements of civil theft under Penal Code section 496 are: “(i) property was stolen or obtained in a manner constituting theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the defendant received or had possession of the stolen property.” (Switzer v. Wood (2019) 35 Cal.App.5th 116, 126.) Section 496 reaches the fraudulent diversion of an entity’s funds by those who control it and is not limited to classic trafficking in stolen goods. (Siry Inv. v. Farkhondehpour (2022) 13 Cal.5th 333.)

Mazen argues the seventh and eighth causes of action for Civil Theft for fail to state a claim because there are not facts “that Mazen committed civil theft.” On demurrer, the pleading is read as a whole and given a reasonable interpretation, with all properly pleaded material facts assumed true. (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962 (1992); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Read as a whole, and with the theft counts’ incorporation of the earlier factual allegations, the 4AXC states a section 496 claim against Mazen on an aiding theory.

The 4AXC alleges that Maher “maliciously, intentionally, and unlawfully misappropriated, received, and/or diverted funds owned by the Corporations which he knew had been stolen and unlawfully obtained as he was the one to take said funds” (4AXC, ¶ 94), and that Maher “further wrongfully withheld and continues to withhold the funds owned by the Corporations which he knew and continues to know has been stolen and unlawfully obtained” (id. ¶ 95). Together with the earlier allegations of embezzlement and continuing diversion, these paragraphs plead an underlying section 496(a) violation by Maher.

The 4AXC alleges Mazen “gave substantial assistance and encouragement to Maher” by “being the person to advise and direct Maher as to how he can acquire said funds via the aforementioned unsavory fashion” and by being “an agent, appointed to aid Maher” who “received benefit from the thefts by Crepevine Ranch, a corporation he has an ownership interest in, receiving stolen funds.” (4AXC, ¶¶ 99, 108.) It also alleges Mazen “knew that Maher was planning to receive the aforementioned funds belonging to the Corporations and that these funds had been stolen in a manner constituting theft” and that Mazen “had such knowledge by being

the person to advise and direct Maher as to how he can acquire said funds” and by his role “as an agent, appointed to aid Maher.” (4AXC ¶¶ 98, 107.)

Cross-Defendants correctly note that not every diversion or fiduciary breach is theft; section 496 requires criminal intent beyond mere nonperformance or falsity. (Garrabrants v. Erhart (2023) 98 Cal.App.5th 486, 505.) The 4AXC’s allegations go beyond bare fiduciary breach: Cross-Complainant alleges Maher took corporate funds “maliciously, intentionally, and unlawfully” with knowledge they had been stolen (4AXC, ¶ 94), and that Mazen advised and directed the acquisition mechanism with knowledge the funds “had been stolen in a manner constituting theft” (Id. ¶ 98).

The demurrer is overruled. Ninth and Tenth Causes of Action for Fraud

The elements of fraud are: (1) misrepresentation or concealment, (2) knowledge of its falsity, (3) intent to defraud, (4) justifiable reliance and (5) resulting damage. (Gil v. Bank of America, Nat. Ass’n (2006) 138 Cal.App.4th 1371, 1381; Barbara A. v. John G. (1983) 145 Cal.App.3d 369, 376.) Fraud causes of action must be pleaded with particularity, meaning that the plaintiff must allege “how, when, where, to whom, and by what means the representations were tendered.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

The derivative and individual fraud claims against Fawzi and Petra are based on Fawzi’s alleged misrepresentation of CPA credentials. Fawzi and Petra challenge these counts on the ground the 4AXC fails to allege damages resulting from the credential misrepresentation because the harms pleaded flow from Fawzi’s later participation in Maher’s scheme. Read as a whole, and with the standard incorporation paragraphs pulling the earlier factual allegations into the fraud counts, the 4AXC pleads damages sufficient to survive demurrer on the sole ground raised.

The 4AXC pleads a cognizable out-of-pocket theory on the face of the fraud counts themselves. Cross-Complainants alleged they contracted and paid for the services of a licensed CPA and received instead the services of an enrolled agent. (4AXC ¶¶ 117, 118.) That is the classic out-of-pocket measure of damages. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) The incorporation paragraphs pull into the fraud counts specific, dollar-measurable harm traceable to the accounting services Cross-Complainants alleged they paid for on the strength of the CPA representation: “late tax payments and payments in incorrect amounts, which resulted in penalties imposed by the IRS,” and “significant tax liability being imposed against Saltio, a now insolvent entity, resulting in Tareq being forced to pay the sums thereof.” (4AXC, ¶¶ 77, 83.)

Whether those injuries are ultimately provable and whether they were caused by reliance on the credential misstatement rather than by independent negligence are questions of proof, not of pleading.

The demurrer is overruled.

All parties must comply with Marin County Superior Court Local Rules, Rule 2.10(B) to contest the tentative decision. Parties who request oral argument are required to appear in person or remotely by ZOOM. Regardless of whether a party requests oral argument in accordance with Rule 2.10(B), the prevailing party shall prepare an order consistent with the announced ruling as required by Marin County Superior Court Local Rules, Rule 2.11.

The Zoom appearance information for August, 2026 is as follows: https://marin-courts-ca-gov.zoomgov.com/j/1615487764?pwd=Ob4B5J7LLKcpnkxzJjjEOSHNzEGafG.1

Meeting ID: 161 548 7764 Passcode: 502070 If you are unable to join by video, you may join by telephone by calling (669) 254-5252 and using the above-provided passcode. Zoom appearance information may also be found on the Court’s website: https://www.marin.courts.ca.gov