Hovarter vs. Borksi

# Case Name Tentative 3 24-01445819 1) Demurrer to Amended Complaint 2) Motion to Strike Portions Of Complaint Hovarter vs. Borksi 3) Joinder

Motions 1 and 3: Demurrer to SAC and Motion for Joinder

Defendants Loren Borski and Evell Stanley’s demurrer to the Second Amended Complaint (“SAC”) is OVERRULED.

Nominal Defendant Monarch’s Motion for Joinder in Defendants’ demurrer is DENIED. Monarch’s joinder is untimely as it was filed just one day before Plaintiff’s opposition to the demurrer was due. Further, the joinder raises new arguments regarding the 7th and 8th causes of action that were not made in the demurrer. Thus, Plaintiff’s objection to the joinder is SUSTAINED.

Defendants’ Request for Judicial Notice of Exhibits 1-6 is GRANTED. Defendants’ request as to Exhibits 7 and 8 is GRANTED, but only as to their existence and not the truth of any of the factual assertions made therein.

Plaintiff’s Request for Judicial Notice of Exhibit 3 is GRANTED. Plaintiff’s request as to Exhibits 1, 2, and 4 is DENIED. Defendants’ objections to Plaintiff’s Exhibits 1, 2, and 4 are SUSTAINED.

Plaintiff’s objection to the Declaration of Rosemary Amezcua-Moll, ¶ 13 and Exhibit E is SUSTAINED.

1st – 7th Derivative Causes of Action

Defendants demur to the first through seventh derivative causes of action on the grounds that the SAC does not allege sufficient facts showing he complied with the statutory prerequisites of Corporations Code section 800 to have standing to assert derivative claims on behalf of Nominal Defendant Monarch Heavy Haul Corporation (“Monarch”).

Corporations Code section 800, subdivision (b) provides, in pertinent part:

No action may be instituted or maintained in right of any domestic or foreign corporation by any shareholder of shares or of voting trust certificates of the corporation unless both of the following conditions exist:

(1) The plaintiff alleges in the complaint that plaintiff was a shareholder, of record or beneficially . . . and

(2) The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that the plaintiff has either informed the

corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.

A shareholder must fully comply with the procedural prerequisites of section 800, subdivision (b), before filing a derivative action on behalf of that corporate entity. (See Schrage v. Schrage (2021) 69 Cal.App.5th 126, 158.) “Alternatively, the plaintiff may demonstrate that such a demand on the board would have been futile.” (Shields v. Singleton (1993) 15 Cal.App.4th 1611, 1618 [footnote omitted].) If the complaint fails to fully comply with either of these statutory requirements, it is subject to a demurrer. (Id. at p. 1619.)

Demand Futility

Defendants argue the SAC fails to adequately allege demand futility. Plaintiff argues the SAC adequately alleges demand futility as to each director.

“Although ‘jurisdictions differ widely in defining the circumstances under which demand on directors will be excused,’ demand typically is deemed futile when a majority of the directors have participated in or approved the alleged wrongdoing, or are otherwise financially interested in the challenged transactions.” (Bader v. Anderson (2009) 179 Cal.App.4th 775, 790 [cleaned up].)

“California courts commonly look to two tests enunciated by the Delaware Supreme Court for determining the adequacy of the pleading of demand futility. Where a decision of the board of directors is challenged in the derivative suit, the Aronson test asks ‘whether, under the particularized facts alleged, a reasonable doubt is created that: (1) the directors are disinterested and independent [or] (2) the challenged transaction was otherwise the product of a valid exercise of business judgment.’ (Aronson v.

Lewis (Del. 1984) 473 A.2d 805, 814 (Aronson) . . . But where the board that would be considering the demand did not make a business decision which is being challenged in the derivative suit’ (Rales v. Blasband (Del. 1993) 634 A.2d 927, 933-934 (Rales)),the Rales test asks whether ‘the particularized factual allegations of a derivative stockholder complaint create a reasonable doubt that, as of the time the complaint is filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand.

If the derivative plaintiff satisfies this burden, then demand will be excused as futile.’” (Apple Inc. v. Superior Court (2017) 18 Cal.App.5th 222, 233 [cleaned up]; but see Kanter v. Reed (2023) 92 Cal.App.5th 191, 206, fn. 9 [acknowledging the “[t]he Delaware Supreme Court recently combined the Rales and Aronson tests” into a universal test but applying the Rales test].)

The court notes “[t]he Delaware Supreme Court recently adopted a universal test for assessing demand futility.” (Tola v. Bryant (2022) 76 Cal.App.5th 746, 752 [applying the new universal test].) However, there

does not seem to be a consensus as to its application in California. (See Kanter v. Reed (2023) 92 Cal.App.5th 191, 206, fn. 9 [acknowledging the “[t]he Delaware Supreme Court recently combined the Rales and Aronson tests” into a universal test but applying the Rales test].)

“A director will be deemed not to be disinterested if the facts alleged ‘demonstrate[] a potential personal benefit or detriment to the director as a result of the decision.’ [Citations.] The personal benefit must arise out of the transaction being challenged.” (Bader, supra, 179 Cal.App.4th at p. 792.) Directors are also not impartial or disinterested if they face a substantial likelihood of personal liability. (Kanter v. Reed (2023) 92 Cal.App.5th 191, 206 (Kanter).)

“[I]n order to evaluate the demand futility claim, the court must be apprised of facts specific to each director from which it can conclude that that particular director could or could not be expected to fairly evaluate the claims of the shareholder plaintiff.” (Shields v. Singleton (1993) 15 Cal.App.4th 1611, 1622 [emphasis added].) The allegations must be made with particularity; general averments do not suffice. (Ibid.; see Corp. Code, § 800, subd. (b)(2).) “Courts evaluating demand futility at the pleading stage can draw reasonable inferences as to director interest when adequately founded on particularized allegations.” (Apple, supra, 18 Cal.App.5th at p. 257 [emphasis in original]; Sandys v.

Pincus (Del. 2016) 152 A.3d 124, 128 [while the plaintiff “ ‘is bound to plead particularized facts in pleading a derivative complaint,’ ” the court assessing the sufficiency of the derivative complaint is “ ‘bound to draw all inferences from those particularized facts in favor of the plaintiff, not the defendant’ ”].)

“For purposes of assessing demand futility upon the filing of an amended complaint, ‘even if the act or transaction complained of in the amendment is essentially the same conduct that was challenged’ in the prior complaint, the proper inquiry is ‘by reference to the board in place at the time when the amended complaint’ was filed.” (Apple, supra, 18 Cal.App.5th at p. 250.) Accordingly, where “an amended complaint alleges derivative claims that were previously deemed legally insufficient, the demand requirement must be assessed in relation to the board of directors in place when the amended complaint is filed.” (Id. at p. 251.)

Here, the derivative claims alleged in the SAC stem from conduct that did not involve a decision of the board. Therefore, the Rales test rather than the Aronson test applies.

Defendants’ successful demurred to the derivative claims of the First Amended Complaint (“FAC”). Defendants’ judicially noticed documents show that the composition of Monarch’s board of directors changed since the filing of the FAC on 12/17/25 and the SAC on 9/25/25. (Defendants’ Request for Judicial Notice in Support of Demurrer (“Defendants’ RJN”), Exs. 1, 3, 5.) Thus, Plaintiff must show demand futility regarding Monarch’s board as of the time Plaintiff filed the SAC. The records show that as of 9/25/25, Monarch’s board

consisted of Russell Loud and John Borski, who are not parties to this action, and Defendant Stanley. (Defendants’ RJN, Exs. 1, 3, 5; see also SAC ¶¶ 20-21.) Accordingly, the SAC must allege facts specific to each director showing a majority of the board members were not disinterested or independent decision makers. (See Shields, supra, 15 Cal.App.4th at p. 1622; Apple, supra, 18 Cal.App.5th at pp. 248, 258.)

The SAC alleges the following Regarding demand futility:

“21. Making a demand on the current board of directors, Defendant Stanley, Russell Loud and John Borski is also futile. According to the facts alleged herein, Defendant Stanley has misappropriated and embezzled the Company's funds, and dissipated Company assets to benefit Orange Courier, Inc., a company solely owned by Defendant Stanley. Defendant Stanley's interests, therefore, are directly adverse to the Company's interests, and she is thus incapable of making impartial, unbiased decisions. Russell Loud has been in a longtime romantic relationship with Defendant Stanley and is incapable of making impartial, unbiased decisions regarding a lawsuit against Defendant Stanley.

Similarly, John Borksi is Borski's brother and is incapable of making impartial, unbiased decisions regarding a lawsuit against his immediate family member. Further, the Company has not agreed to bring a lawsuit directly.”

(SAC, ¶ 21.)

As to Russell Lord and John Borski, the SAC’s conclusory allegations that Mr. Lord is in a “longtime romantic relationship with Defendant Stanley” and John Borski’s familial relationship with Defendant Loren Borski necessarily render “them incapable of making impartial, unbiased decisions” are insufficient. (See Apple, supra, 18 Cal.App.5th at 257.) Additionally, allegations of a personal friendship with a controlling shareholder “do not suffice to cast reasonable doubt as to the director’s independence.” (Bader, supra, 179 Cal.App.4th at 792.)

While the Opposition also references paragraphs in the SAC and judicially noticed documents that allege that Mr. Loud was elected as a Monarch Director after the lawsuit was filed and Mr. John Borski was elected as a Director during the pending lawsuit (Opp., p. 9, lines 2-3, lines 27-28), there is no indication in the SAC or the judicially noticed documents when they were elected. Additionally, Opposition references paragraphs in the SAC where statements were purportedly made, but they are not in those paragraphs.

As an example, the Opposition claims paragraphs 6 and 15 of the SAC state that Mr. Loud was elected a Director after the lawsuit was filed. But those paragraphs do not actually say that. The Opposition also argues Defendant Stanley gifted Mr. Loud real property. However, that fact and the circumstances surrounding the purported give are not alleged in the SAC. Further, the truth of whether such real property was actually “gifted” is not the proper subject of

judicial notice and subject to Defendants’ objections which have been sustained.

Demand

The SAC alleges in the alternative that Plaintiff provided Monarch as well as “its current board of directors, Defendant Stanley, Russell Loud (Defendant Stanley’s longtime partner), and John Borski (Borski’s brother), and Borski with a true and correct copy of the Proposed Second Amended Complaint prior to filing the Second Amended Complaint.” (SAC, ¶ 20.) This is sufficient.

Defendants complain that Plaintiff transmitted the demand to Monarch less than 24 hours before the filing of the SAC on 9/25/25. This argument fails because that fact is not alleged in the SAC and is based on extrinsic evidence that is subject to Plaintiff’s objection which has been sustained.

Therefore, the demurrer to the first through seventh derivative causes of action is OVERRULED.

8th Individual Cause of Action - Involuntary Dissolution

Defendants demur to the eighth individual cause of action on the grounds that the SAC does not state facts sufficient to constitute a cause of action.

The SAC seeks involuntary dissolution pursuant to Corporations Code section 1800(b)(4) and (b)(5). Corporations Code section 1800(b) provides for the involuntary dissolution of a corporation where, among other grounds, “[¶] (4) Those in control of the corporation have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers. [¶] (5) In the case of any corporation with 35 or fewer shareholders (determined as provided in Section 605), liquidation is reasonably necessary for the protection of the rights or interests of the complaining shareholder or shareholders.” (Corp. Code § 1800(b)(4) and (5).)

The court previously sustained Defendants’ demurrer to this cause of action because the FAC’s incorporation of all prior paragraphs into a single paragraph, without alleging facts, was a “shotgun pleading” insufficient to show liquidation was reasonably necessary.

The court finds Plaintiff has cured this this defect by alleging facts within this cause of action to support the claim for involuntary dissolution. (See SAC, ¶¶67-68.)

The SAC also sufficiently alleges facts showing the liquidation is reasonably necessary to protect Plaintiff’s rights as a 40% shareholder. (SAC, ¶ 68.)

At the pleading stage, when viewed as a whole, these allegations are sufficient.

Defendants’ unclean hands argument is inappropriate as it is not based on allegations of the SAC or facts that are the proper subject of judicial notice. (See Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 121 [a court cannot take judicial notice of hearsay allegations as being true, just because they are part of a court record or file].)

“The hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of affidavits, declarations, depositions, and other such material which was filed on behalf of the adverse party and which purports to contradict the allegations and contentions of the plaintiff.” (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 605.)

Therefore, the demurrer to the eighth individual cause of action is OVERRULED.

Motion 2: Motion to Strike

Defendants Motion to Strike is GRANTED, in part, and DENIED, in part, without leave to amend.

Defendants move to strike numerous allegations of the SAC, listed a. – k. in Defendants’ notice of motion, on the grounds that they are “irrelevant, false, improper and irrelevant” pursuant to Code of Civil Procedure, section 436, subdivision (a), and are not drawn or filed in conformity with the laws of this state, a court rule or other of court” pursuant to section 436, subdivision (b).

The court may strike from a pleading any irrelevant, false, or improper mater, or may strike all or any part of a pleading that is not dawn or filed in conformity with this state’s laws, a court rule or an order of the court. law or court orders, and/or contains false or improper information. (Code Civ. Proc., § 436, subds. (a), (b); Brandwein v. Butler (2013) 218 Cal.App.4th 1485, 1497.) The grounds for a motion to strike must appear on the face of the pleading under attack, or from matter which the court may judicially notice. (Code Civ. Proc., § 437; CPF Agency Corp. v. R&S Towing Service (2005) 132 Cal.App.4th 1014, 1032.) The court accepts as true all material factual allegations; however, it “does not consider conclusions of fact or law, opinions, speculation, or allegations contrary to law or judicially noticed facts.” (Velez v. Smith (2006) 142 Cal.App.4th 1154, 1163.)

Item (a): Defendants dispute the allegation in paragraph 5 of the SAC that Borski resides in Orange County and contend that Borski resides in Riverside. However, Defendants’ argument is not based on allegations that appear on the face of the SAC but on material that is not the proper subject of judicial notice. The motion is DENIED as to these allegations.

Items (b), (f), and (g): These items target nothing more than typographical errors that do not materially alter a reader's understanding of the SAC's allegations. The motion is DENIED as to these allegations.

Items (c), (d), and (e): Defendants seek to strike Paragraphs 13 through 19 of the SAC, together with Exhibits 1, 2, and 3 attached thereto, which appear under the heading “Demand Futility”. These allegations and exhibits are irrelevant because they solely relate to incidents occurring prior to Plaintiff’s filing of the FAC. However, because the court sustained Defendants’ demurrer as to the derivative claims in the FAC, for Plaintiff to allege demand futility under Corp. Code §800(b)(2) he must show demand futility regarding Monarch’s board of directors as of the time he filed the SAC, not any prior complaint. (Apple, supra, 18 Cal.App.5th at 231.) Therefore, no actions that pre-date the filing of the SAC are relevant here. The motion is GRANTED as to these allegations.

Item (h): Defendants seek to strike the entire paragraph 47 from the third cause of action for Breach of Fiduciary Duty, which alleges: “Defendant Stanley also improperly bound the Company to the MNY Capital Agreement, Spring Funding Agreement and a Stipulation of Settlement that benefited herself and Orange Courier, Inc., which she controls. As a result, Plaintiff is entitled to damages in a sum according to proof.” Defendants argue this paragraph should be stricken because the fact of damages in a breach of fiduciary duty claim must be certain but the future damages in paragraph 47 are speculative and the Court, therefore, lacks jurisdiction to hear that claim against Defendant Stanley.

However, “[a] motion to strike does not lie to attack a complaint for insufficiency of allegations to justify relief; that is a ground for general demurrer.” (Pierson v. Sharp Memorial Hospital, Inc. (1989) 216 Cal.App.3d 340, 342.) The motion is DENIED as to these allegations.

Item (i): Defendants seek to strike the phrase “to treble damages and” from the derivative fourth cause of action for Violation of California Penal Code § 496(a) arguing it is incorrect under the law for a plaintiff shareholder to recover any damages in a derivative action. However, Defendants fail to recognize that the SAC defines Plaintiff as both “Trevor Hovarter, Individually and Derivatively on Behalf of Monarch Heavy Haul Corporation.” (SAC, at p. 2:1-2.) Thus, while Plaintiff, individually, cannot seek damages, Plaintiff, derivatively on behalf of Monarch, can. (See Apple, supra, 18 Cal.App.5th at 248 [“A stockholder can seek to enforce the corporation’s rights in a derivative suit, but ‘[t]he fact remains that a derivative claim belongs to the corporation, not to the plaintiff asserting the claim on the corporation’s behalf.”].) The motion is DENIED as to these allegations.

Items (j): Defendants seek to strike the following p. 15:23 – 16:2 from paragraph 66 of the eighth cause of action for Involuntary Dissolution, which alleges: “Plaintiff has personally guaranteed all of the Company's equipment finance loans and used his credit to obtain those loans for the Company. On January 17,2025, Defendants Borski and Stanley and the

Board of Directors voted to remove Plaintiff from his position as an officer and director of the Company. On February 4, 2025, Plaintiff was terminated as an employee of the Company. As a result, Plaintiff no longer has a reasonable expectation of his salary. Further, the Company has ignored Plaintiff's corporate records request made on June 19, 2025, and August 29, 2025, pursuant to Corporations Code Section 1601.”

Defendants argue these allegations are irrelevant because they pertain to Plaintiff’s role as an employee and not as Monarch’s shareholder. Defendants are incorrect. These allegations are relevant as they explain the extent of the controlling shareholders’ abuse of authority and persistent unfairness towards Plaintiff. They also provide additional context for why involuntary liquidation is reasonably necessary to protect Plaintiff's rights. The motion is DENIED as to these allegations.

Item (k): Defendants seek to strike the phrase “have been guilty of” from paragraph 67 of the eighth cause of action for Involuntary Dissolution. [The Motion incorrectly states this phrase appears in paragraph 68.] Defendants argue this is false because the SAC does not shows that Defendant Borski and Stanley have been found guilty of any wrongdoing since this is a civil action, not a criminal action. Defendants’ argument lacks merit. The phrase “have been guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority” that is alleged in paragraph 67 tracks the language of Corporation Code section 1800(b)(4) verbatim. (Corp. Code § 1800(b)(4).) The motion is DENIED as to these allegations. 4 24-01418766 Motion for Leave to File Amended Complaint

Bevli vs. Williams Plaintiffs Sangeeta Bevli and Gurcharan Bevli’s Motion for Leave to Amend is GRANTED.

Plaintiff is ORDERED To file the proposed amended complaint attached to this Motion within 5 days of this order.

“A motion to amend a pleading before trial must: [¶] (1) Include a copy of the proposed amendment or amended pleading, which must be serially numbered to differentiate it from previous pleadings or amendments; [¶] (2) State what allegations in the previous pleading are proposed to be deleted, if any, and where, by page, paragraph, and line number, the deleted allegations are located; and [¶] (3) State what allegations are proposed to be added to the previous pleading, if any, and where, by page, paragraph, and line number, the additional allegations are located.” (Cal.

Rules of Court, rule 3.1324(a).) Additionally, the party must submit a declaration providing “(1) The effect of the amendment; [¶] (2) Why the amendment is necessary and proper; [¶] (3) When the facts giving rise to the amended allegations were discovered; and [¶] (4) The reasons why the request for amendment was not made earlier.” (Rule 3.1324(b).)