Advoque Safeguard, LLC et al. v. Sanctuary Systems, LLC et al.

In March 2020, Cross-Defendants and Sanctuary entered into various purchase agreements for the supply of filtration materials from Sanctuary to Cross-Defendants. (FAXC, ¶ 32.) Cross-Defendants began producing the masks in late April 2020 but did not have the ability to test their masks in-house. (Id. at ¶¶ 43-44.) Instead, Cross-Defendants contracted with Nelson Laboratories (“Nelson”) and ICS Laboratories, LLC (“ICS”) to test and confirm the masks would perform as N95 respirators. (Id. at ¶¶ 44-45.)

On April 30, 2020, unbeknownst to Sanctuary, Cross-Defendants began to ship out the masks without having received the test results from Nelson or ICS or having received the Center for Disease Control’s National Institute for Occupational Safety and Health’s (“NIOSH”) approval. (Id. at ¶¶ 46-47.) Cross-Defendants also concealed: (1) the failed tests results, quality control issues, and customer complaints associated with Cross-Defendants’ masks made with Sanctuary’s materials; (2) that Cross-Defendants made material misrepresentations to NIOSH to receive temporary certification; (3) that Cross-Defendants marketed and distributed masks falsely labeled as NIOSH-compliant; and (4) that Cross-Defendants transferred funds out of their accounts in a manner that impaired their financial stability and legal accountability to Sanctuary and to customers. (Id. at ¶¶ 130-133.)

Cross-Defendants concealed these material facts to induce Sanctuary to continue supplying filtration materials. (Id. at ¶ 135.) Cross- Defendants formed a conspiracy to commit fraud by entering into written agreements whereby Ciasom would manufacture ASG-branded masks and ASG would distribute the same. (Id. at ¶¶ 141-142.) In October 2024, ASG and its agents, Jason Azevedo, Paul Shrater, and Andrew Stack were criminally charged in the United States District Court for the District of Massachusetts, and Sanctuary became entangled in the criminal investigation leading up to the charges. (Id. at ¶¶ 123, 134.)

On March 5, 2026, Cross-Defendants filed the instant motion for summary adjudication of the first cause of action for fraud and deceit by concealment and the second cause of action for conspiracy. Sanctuary filed a timely opposition, and Cross-Defendants filed a timely reply.

Motion for Summary Adjudication

Legal Standard

Any party may move for summary judgment. (Code Civ. Proc., § 437c, subd. (a); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar).) The motion “shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c); Aguilar, supra, 25 Cal.4th at p. 843.) The object of the summary judgment procedure is “to cut through the parties’ pleadings” to determine whether trial is necessary to resolve the dispute. (Aguilar, supra, 25 Cal.4th at p. 843.)

Similarly, “[a] party may seek summary adjudication on whether a cause of action, affirmative defense, or punitive damages claim has merit or whether a defendant owed a duty to a plaintiff. [Citation.] ‘A motion for summary adjudication...shall proceed in all procedural respects as a motion for summary judgment.’ [Citation.]” (California Bank & Trust v. Lawlor (2013) 222 Cal.App.4th 625, 630.)

“A defendant seeking summary judgment must show that at least one element of the plaintiff’s cause of action cannot be established, or that there is a complete defense to the cause of action...The burden then shifts to the plaintiff to show there is a triable issue of material fact on that issue.” (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72; internal citations omitted.) A triable issue of material fact exists “if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Aguilar, supra, 25 Cal.4th at p. 850, fn. omitted.) If the party opposing summary judgment presents evidence demonstrating the existence of a disputed material fact, the motion must be denied. (Id. at p. 856.)

A motion for summary judgment or adjudication shall be granted only if it completely disposes of an entire cause of action, an affirmative defense, a claim for damages, or an “issue of duty.” (See Code Civ. Proc., § 437c, subd. (f)(1); McClasky v. California State Auto. Ass’n (2010) 189 Cal.App.4th 947, 975 (McClasky) [“If a cause of action is not shown to be barred in its entirety, no order for summary judgment—or adjudication—can be entered.”]; Palm Spring Villas II Homeowners Association, Inc. v. Parth (2016) 248 Cal.App.4th 268, 288.)

Evidentiary Objections

Cross-Defendants’ objections to paragraphs 18-19 of the Declaration of Dr. Harry M Barnes for lack of foundation and their conclusory nature is SUSTAINED. (See Evid. Code, §§ 403, 702, 800, 803.) It is unclear how Barnes arrived at the conclusion that Sanctuary’s net operating losses were “largely caused by the collapse of Sanctuary’s relationship with Advoque” or that Sanctuary’s ability to take in revenue was frustrated uniquely by Advoque’s cessation of purchasing meltblown from Sanctuary.

Cross-Defendants’ objection to Exhibit CC of the Declaration of Dennis L. Daniels on the grounds of settlement or plea negotiations and relevance is OVERRULED. (See Evid. Code, § 1152 [precluding admission of an offer to compromise as evidence of liability for damage].) The presentation by ASG’s counsel to the United States Attorney’s Office is not offered as evidence of liability, but to establish that ASG cast Sanctuary in a negative light.

(See Declaration of Dennis L. Daniels [“Daniels Decl.”], Ex. CC at p. 17 [“Underlying issues are with Sanctuary material, not ASG mask production”].)

The court need not rule on the remaining objections, which are preserved, because they are not material to the disposition of the motion. (Code Civ. Proc., § 437c, subd. (q).)

Discussion

Cross-Defendants move for summary adjudication of the first cause of action for fraudulent concealment and second cause of action for conspiracy on the ground that Cross- Complainant cannot establish at least one element of each cause of action.

First Cause of Action: Fraud and Deceit by Concealment

The elements of an action for fraud based on concealment are: (1) the defendant concealed or suppressed a material fact; (2) the defendant had a duty to disclose the fact to the plaintiff; (3) the defendant intentionally concealed the fact with the intent to defraud the plaintiff; (4) the plaintiff was unaware of the fact and would not have acted as he did if he had known of the concealed fact; and (5) as a result of the concealment of the fact, the plaintiff sustained damage.

(Knox v. Dean (2012) 205 Cal.App.4th 417, 433 [quoting Hahn v. Mirda (2007) 147 Cal.App.4th 740, 748].)

Cross-Defendants assert that summary adjudication of the concealment claim is proper because Cross-Complainant cannot establish: (1) Cross-Defendants concealed any material fact; (2) Cross-Defendants had a duty to disclose; (3) Cross-Defendants had an intent to defraud; and (4) Cross-Complainant suffered any damages.

Concealment of a Material Fact

Cross-Defendants contend the following material facts were either immaterial or were disclosed to Sanctuary: (1) the failed test results, quality control issues, and customer complaints associated with Cross-Defendants’ products; (2) Cross-Defendants made material misrepresentations to NIOSH to secure temporary certification; (3) Cross-Defendants marketed and distributed masks falsely labeled as NIOSH-compliant; (4) Cross-Defendants transferred funds out of their own accounts in a manner that impaired their financial stability and legal accountability to Sanctuary. (Motion, p. 13:21-28 [citing FAXC, ¶¶ 130-133].)

As an initial matter, the court notes that the four categories of material facts Cross- Defendants identify are expressly alleged as “examples” of concealment in the FAXC. In its opposition, Sanctuary asserts that the FAXC alleges additional “numerous facts” that Cross- Defendants concealed. (Opposition, p. 8:25-28.) Sanctuary does not identify these allegations, but upon review of the FAXC, the court agrees. As noted above, the FAXC alleges that Cross- Defendants misrepresented their knowledge, capacity, and ability to produce N95 respirators and concealed that they lacked a concrete plan for manufacturing the same to facilitate the monopolization of Sanctuary’s supplies. (FAXC, p. 2:4-12; see id. ¶ 35.)

The FAXC also alleges that Cross-Defendants (1) concealed their contract with JDM Supply, LLC for the sale and distribution of N95 respirators to hospitals in Florida and Massachusetts despite knowing the masks would not be approved for weeks or months; and (2) concealed their distribution of

“ear loop” masks despite not having NIOSH approval or testing the final product. (Id. at ¶¶ 37-41, 46-47, 49.) Cross-Defendants make no attempt to address this argument on reply—nor can they. (See Keyes v. Bowen (2010) 189 Cal.App.4th 647, 656 [“Appellants may not attempt to rectify their omissions and oversights for the first time in their reply briefs because this deprives the opposing party of an opportunity to respond.”]) As the concealment cause of action is not barred in its entirety, summary adjudication cannot be granted on this basis. (See McClasky, supra, 189 Cal.App.4th at p. 975.)

Cross-Defendants’ Duty to Disclose

Cross-Defendants next argue that Sanctuary cannot establish that they owed any duty to disclose the concealed facts.

“There are four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336, citation and quotations removed.) “Thus, a duty to disclose may arise from the relationship between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement. [Citation.]

All of these relationships are created by transactions between parties from which a duty to disclose facts material to the transaction arises under the certain circumstances.” (Id. at p. 337, emphasis added.)

Here, Cross-Defendants maintain they had no duty to disclose because the purportedly concealed facts were unrelated to Sanctuary’s sale of meltblown to Cross-Defendants. (Motion, p. 18:4-7.) The analysis is again limited to the four categories of material facts identified above and ignores the additional allegations such as Cross-Defendant’s concealment of their lack of experience in producing N95 respirators and their lack of a concrete plan. (FAXC, p. 2:4-12.) In its opposition, Sanctuary points out that Cross-Defendants’ misrepresentations of their ability to produce N95 respirators were “specifically related” to the transaction. (Opposition, p. 15:19-22.)

Cross-Defendants do not address this misrepresentation on rebuttal. While it is unclear whether Cross-Defendants’ misrepresentations are ultimately material to the transaction itself, Cross-Defendants’ failure to address this misrepresentation—among others—bars summary adjudication of this cause of action on this ground. (See McClasky, supra, 189 Cal.App.4th at p. 975.)

Intent to Conceal

Cross-Defendants contend that Sanctuary has no evidence that Cross-Defendants knowingly and intentionally concealed any material facts because (1) the allegations that Cross-Defendants made misrepresentations to NIOSH are untrue; (2) Cross-Defendants did not know they sold misbranded goods; or (3) the allegations concerning earloop masks and intracompany fund transfers were irrelevant to Sanctuary and therefore immaterial. (Motion, pp. 18:26-19:4.) Cross-Defendants cite Jason Azevedo’s declaration and the depositions of Paul Shrater and Andrew Stack in support. The argument is unpersuasive because it is insufficient for a movant to show only that the opposing party currently “has no evidence” on a key element of its claim. The movant must also produce evidence showing that the opposing party

cannot reasonably obtain evidence to support that claim. (See Gaggero v. Yura (2003) 108 Cal.App.4th 884, 891, [“[T]he absence of evidence to support a plaintiff's claim is insufficient to meet the moving defendant’s initial burden of production. The defendant must also produce evidence that the plaintiff cannot reasonably obtain evidence to support his or her claim.”].) Azevedo’s declarations and the depositions do not exclude the possibility that Sanctuary may possess or reasonably obtain evidence to establish their claim. (See Scheiding v.

Dinwiddie Const. Co. (1999) 69 Cal.App.4th 64, 80-81 [precluding a court from inferring that plaintiff lacks evidence on a point defendant does not pursue in discovery]; Gulf Ins. Co. v. Berger, Kahn, Shaffton, Moss, Figler, Simon & Gladstone (2000) 79 Cal.App.4th 114, 134-136 [“[T]o grant summary judgment, the court must be able to infer from the record that the plaintiff could produce no other evidence on the disputed point.”]) The proffered evidence does not conclusively exclude the possibility that Sanctuary may obtain sufficient evidence to establish its claim, nor does it allow the court to infer that Sanctuary cannot produce any other evidence on this point.

Moreover, the offered evidence does not address the allegation that Cross-Defendants intentionally concealed the absence of a concrete plan. Accordingly, summary adjudication cannot be granted on this basis.

Resulting Damages

Cross-Defendants argue that Sanctuary cannot demonstrate that it suffered losses of business opportunities, relationships, sales, revenue, market share, and goodwill, in addition to reputation harm and lost profits because Sanctuary was enriched in its dealings with Cross- Defendants. Cross-Defendants offer evidence that (1) they were Sanctuary’s only customer for meltblown; (2) by October 2020, “substantially all” of Sanctuary’s revenue came from ASG; (3) prior to the agreement with ASG, Sanctuary had not entered into another agreement for a similar level of profit or revenue; and (4) Cross-Defendants paid all of Sanctuary’s invoices. (See Declaration of Ryan Abbott [“Abbott Decl.”], Ex. 1 [Deposition of Buddy Barnes] at pp. 115:23-116:2, 176:7-10; see also id., Ex. 2 [Deposition of Harry Barnes] at pp. 64:12-17; Declaration of Jason Azevedo [“Azevedo Decl.”], ¶ 6.)

Cross-Defendants also maintain that Sanctuary could not have suffered reputational harm because after receiving customer complaints concerning their masks, Cross-Defendants did not represent to any of the customers that the issues were caused by Sanctuary or the materials it provided. (Azevedo Decl., ¶ 13.) Finally, Cross-Defendants argue that Sanctuary earned additional revenue from their business dealings because Sanctuary used the sales revenue from Cross-Defendants to purchase equipment to manufacture its own masks. (Abbott Decl., Ex. 2 [Deposition of Harry Barnes] at pp. 151:23-152:4.)

Cross-Defendants’ have met their initial burden on this motion.

In opposition, Sanctuary asserts that Cross-Defendants’ payment for all invoices is immaterial because Sanctuary incurred legal fees and costs in association with the federal investigation into Cross-Defendants. (Declaration of Harry M. Barnes [“Barnes Decl.”], ¶¶ 14- 16.) This assertion is unpersuasive as the FAXC does not allege legal fees and costs incurred from the federal investigation as part of the damages theory. (See California Bank & Trust v. Lawlor (2013) 222 Cal.App.4th 625, 637, fn. 3 [“[a] party may not oppose a summary judgment motion based on a claim, theory, or defense that is not alleged in the pleadings,” and “[e]vidence offered on an unpleaded claim, theory, or defense is irrelevant because it is outside the scope of the pleadings”]; see also FAXC, ¶ 134 [alleging only entanglement in criminal proceedings].)

Sanctuary next offers its 2020 to 2024 profit and loss statements to demonstrate that Sanctuary suffered net operating losses due to the parties’ failed relationship. (See Barnes Decl., Ex. JJ.) The court agrees with Cross-Defendants that the evidence does not adequately support the speculative argument because Sanctuary does not provide admissible evidence linking the revenue decline to Cross-Defendants. (Reply, p. 9:1-4; see Marshak v. Ballesteros (1999) 72 Cal.App.4th 1514, 1519 (Marshak) [“Damages may not be based upon sheer speculation or surmise, and the mere possibility or even probability that damage will result from wrongful conduct does not render it actionable.”]) The profit and loss statements are general in their itemization and make no reference to Cross-Defendants.

At best, they demonstrate that Sanctuary suffered net operating losses but they do not establish beyond a mere possibility that Cross-Defendants and the parties’ failed relationship were the specific cause. And, as noted above, the court finds Barnes’ statements attributing the losses to ASG and Sanctuary’s failed relationship inadmissible.

Sanctuary’s remaining arguments concerning lost business opportunities and reputational harm are more persuasive and demonstrate a triable issue of material fact on at least one of Sanctuary’s claims for damages.

Sanctuary maintains that it lost business opportunities with “legitimate businesses” in reliance on Cross-Defendants’ representations of their ability, demand for meltblown, and assurances that the ASG’s business was “legitimate, lawful, and sustainable.” (Barnes Decl., ¶¶ 10-11; see Daniels Decl., Ex. Z [Deposition of Stephen Sharp]1, at p. 111:7-25 [testifying that “many people” were calling for meltblown sales].) Cross-Defendants do not meaningfully rebut this argument and instead rely on Marshak, for the proposition that Sanctuary must prove it would have made more money had it not sold materials to Cross-Defendants. (Reply, p. 8:21-27.)

Marshak concerned a legal malpractice action, which expressly requires a plaintiff to prove “that [plaintiff] would have obtained a better result if [defendant] had acted as a reasonably careful attorney” to recover damages. (CACI No. 601) Marshak is therefore distinguishable.

To demonstrate a triable issue of material fact on Sanctuary’s claim for reputational harm, Sanctuary offers ASG’s presentation to the United States Attorney’s Office, wherein ASG represents that “Underlying issues are with Sanctuary material, not ASG mask production” and “ASG was victimized by Sanctuary’s misrepresentations and defective material.” (See Daniels Decl., Ex. CC at pp. 17, 21.) Cross-Defendants do not address this evidence in their reply.

Given the foregoing, the court DENIES Cross-Defendants’ motion for summary adjudication of the first cause of action for concealment.

Second Cause of Action: Conspiracy

Cross-Defendants solely assert that summary adjudication of the second cause of action for conspiracy is proper because the claim is derivative of the concealment claim. (Motion, p. 20:19-22 [citing Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503,

1 Stephen Sharp was Sanctuary Systems’ Director of Engineering and Operations. (Daniels Decl., Ex. T [Exhibit 2 to Stephen Sharp’s deposition], p. 5.)

510-511].) Given the foregoing, the court DENIES Cross-Defendants’ motion for summary adjudication of the second cause of action for conspiracy.

Disposition

Cross-Defendants ASG and Ciasom’s motion for summary adjudication of the first and second causes of action of Cross-Complainant Sanctuary System’s First Amended Cross- Complaint is DENIED.

The court will prepare the order.

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