Aresh vs. Hunt

The court OVERRULES Plaintiff’s objections to the declaration of Etienne Locoh (“Locoh”). Locoh’s statements regarding the history and relationship between the various entities involved in this action and the subject transactions appear to be based on his personal knowledge and do not consist of inadmissible hearsay statements. Plaintiff’s primary objections to Locoh’s declaration concern the weight of the evidence rather than its admissibility. (Fuller v. Goodyear Tire & Rubber Co. (1970) 7 Cal. App. 3d 690, 693 [discussing requirements for a declaration to support a motion for summary judgment, not its admissibility]; Knox v. Dean (2012) 205 Cal. App. 4th 417, 432 [discussing requirements for a declaration to defeat a motion for summary judgment, not its admissibility].)

The court SUSTAINS IUC’s Objection No. 5 to the October 15, 2012 e-mail from William F. White for lack of authentication. The court OVERRULES all of IUC’s remaining objections to the exhibits, and witness and expert declarations, filed by Plaintiffs in support of their opposition.

IUC seeks summary adjudication as to Plaintiffs’ First Cause of Action for Breach of Fiduciary Duty on the grounds that (1) Plaintiffs cannot establish that IUC owed them a fiduciary duty; and (2) Plaintiffs cannot establish that IUC is liable for breach of fiduciary duty under an alter ego theory.

Plaintiffs contend that IUC cannot seek summary adjudication on these two issues, but the court finds that they are the proper subject of summary adjudication when resolved together to potentially dispose of the entire cause of action.

“A party may move for summary adjudication as to one or more causes of action . . . if the party contends that the cause of action has no merit . . .” (CCP § 437c(f)(1).) “A defendant is entitled to summary adjudication if it can show that the plaintiff does not have evidence to establish at least one element of the relevant cause of action.” (Sharufa v. Festival Fun Parks, LLC (2020) 49 Cal. App. 5th 493, 497.) A court “review[s] the entire record and ask[s] whether a reasonable trier of fact could find in plaintiff's favor.” (Id.) “If a trier of fact could reasonably find for plaintiff on all elements of the cause of action, summary adjudication must be denied.” (Id.)

Courts “liberally construe the evidence and resolve any doubts in favor of the party opposing the motion.” (Id.)

“The elements of a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.” (Stanley v. Richmond (1995) 35 Cal. App. 4th 1070, 1086.)

A fiduciary relationship is “any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party.” (Cleveland v. Johnson (2012) 209 Cal. App. 4th 1315, 1338.) “Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter's knowledge or consent.” (Id.) “[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.” (Id.) “[E]xamples of relationships that impose a fiduciary obligation to act on behalf of and for the benefit of another are ‘a joint venture, a partnership, or an agency.’” (Id. at 1339.) “Fiduciary duties arise as a matter of law ‘in certain technical, legal relationships,’” including between “principal and agent.” (Oakland Raiders v.

Nat'l Football League (2005) 131 Cal. App. 4th 621, 632.) “An agent is a fiduciary with respect to matters within the scope of his agency.” (Id. at 633 n.8.)

As a threshold matter, the court shall not take into consideration Plaintiffs’ new arguments that IUC owes Plaintiffs fiduciary duties as a purported real estate broker or as an alleged promoter of securities. These allegations are not in the operative Fifth Amended Complaint (“5AC”). A plaintiff “cannot overcome summary adjudication by raising a new, unpleaded theory in opposition without amending the operative pleading prior to the hearing on the motion.” (Miller v. Dep't of Corr. & Rehab. (2024) 105 Cal. App. 5th 261, 286– 87.)

The court also finds that Plaintiffs have not adequately presented admissible evidence sufficient to raise a triable issue of fact that IUC in particular owed Plaintiffs any fiduciary duties.

As relevant to this Motion, Plaintiffs allege in the 5AC that certain Defendants breached fiduciary duties owed to Plaintiffs with respect to the sale of two properties, the Western Place property and the Congress Center Property, including withholding conflicts of interest, withholding material information affecting appraisals of the property, and suppressing competing offers for the property, among other alleged misconduct.

Plaintiffs attribute conduct by Locoh, or one of the other entities to IUC, but IUC’s connection to the conduct at issue in the First Cause of Action is limited to the following contention: On August 10, 2011, a joint venture between Infinity Urban Century (“IUC”) and Etienne Locoh ("Locoh") on the one hand, and Sovereign Capital Management Group, Inc. (“SCMG”) and Todd Mikles (“Mikles”) on the other hand, known as IUC-SOV, LLC (“IUC-SOV”), acquired Daymark Realty Advisors, Inc. (“DRA”) and related subsidiary entities, via a stock sale to the joint venture entity. (Pltfs.’ Evid., Ex. 46 [Locoh Deposition, Volume I, 22:22 - 23:10; 37:24 - 38:6, 41:11-20, 42:14-25]; Locoh Dec. ¶ 9.)

Plaintiffs claim that DRA was Plaintiffs’ asset and property Manager for both the Western Place and Congress Center properties. Plaintiffs state that DRA had 1) assigned a "portfolio manager" for each Plaintiffs' interest in the Western Place and/or Congress Center properties, 2) issued property reports to Plaintiffs as owners, 3) was the entity communicating with Plaintiffs as owners, and 4) announced, in February 2011, that it was Plaintiffs' property and asset manager. (Pltfs.’ Evid., Exs. 4 (DRA Introductory Letter to Leroy & Katherine Looper stating DRA shall “provide specialized management services to the owners of its nationwide portfolio of tenant-in-common properties,” and as DRA “has become the parent company of Grubb & Ellis Realty Investors,” DRA “will be responsible for the management of [the] property”); 7 (Western Place Report), 34 (DRA letter on Congress Center), 35 (Congress Property Report), and 40 (Private Placement Memorandum Amendment for American Recovery Property OP (“ARP OP”)).)

The court finds that this evidence, at best, raises a triable issue of fact as to whether DRA owes Plaintiffs fiduciary duties, but fails to demonstrate that IUC owed Plaintiffs any fiduciary duties. “A parent corporation is not liable on the contract or for the tortious acts of its subsidiary simply because it is a wholly owned subsidiary.” (N. Nat. Gas Co. v. Superior Ct. (1976) 64 Cal. App. 3d 983, 991.) “Some other basis of liability must be established.” (Id.) “Stock ownership alone is not enough.” (Id. [emphasis in original].) Here, Plaintiffs provide no evidence other than the corporate relationship between DRA and IUC to support attributing any fiduciary duties or breach of such duties by Locoh, DRA, or any other affiliated entity, to IUC.

Plaintiffs make several allegations and introduce evidence concerning Locoh’s involvement in the management and eventual sale of Plaintiffs’ properties through other entities, including DRA, Daymark Properties Realty, Inc. (“DRP”), Triple Net Properties, LLC ("NNNRI"), American Recovery Property Trust (“ARPT”), American Recovery Operating Partnership ("ARPOP"), and American Recovery Property Advisors, LLC ("ARPA"). All evidence and allegations raised by Plaintiffs concern the conduct of Locoh as an individual or as a representative of one of the other entity defendants in this action, not as the managing member of IUC. (Locoh Dec. ¶ 3.)

The only evidence Plaintiffs rely upon to link IUC to Locoh’s conduct is the fact that Locoh used an e-mail address with the domain “infinity-group.com” in his communications, but there is no evidence that this domain name belongs to IUC (as opposed to Infinity Group). Notably, the signature on these emails describe Locoh as the “Managing Partner” of “Infinity Real Estate LLC,” with no mention of IUC. (Pltfs.’ Evid., Exs. 19, 19, 26-28, 30.) Thus, the email address alone is insufficient to raise a triable issue of fact as to any fiduciary duty owed by IUC itself to Plaintiffs.

Plaintiffs point out that Locoh directly acknowledged "we represent the TICs” in an internal e-mail to Brookfield Financial. (Pltfs.’ Evid., Ex. 16. p. 19443.) However, there is no explanation as to who “we” means and no evidence that Locoh was e-mailing on behalf of IUC, as opposed to on behalf of DRA or some other entity. Plaintiffs claim that in deposition testimony Locoh acknowledged that DRA and DPR owed fiduciary obligations to the TICs. However, the deposition transcript only shows Locoh stating that he understood that a “manager of the property for the tenant-incommon owners,” “had obligations to -- fiduciary obligations to the TIC investors in the properties it managed.” (Pltfs.’ Evid., Ex. 47, 105:18 - 106:11. (Locoh Dep. Tr., Vol. II).)

Further, this admission is irrelevant to establish any fiduciary duties owed to Plaintiffs by IUC.

Based on the foregoing, Plaintiffs have failed, as a matter of law, to demonstrate that IUC owed Plaintiffs any fiduciary duties directly.

Plaintiffs have also failed to raise a triable issue of fact as to whether IUC may be liable as an alter ego of Locoh or any one of the other entity Defendants.

“It is fundamental that a corporation is a legal entity that is distinct from its shareholders.” (Santa Clarita Org. for Plan. & Env't v. Castaic Lake Water Agency (2016) 1 Cal. App. 5th 1084, 1104.) Thus, “a parent corporation (so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiaries.” (Id.) “However, where a parent corporation (or, for that matter, anyone) that owns all of a subsidiary's stock operates that subsidiary in a manner that renders the subsidiary merely an alter ego of its parent (and a ghost of its former, independent self), courts can pierce the so-called ‘corporate veil’ and treat the two as one.” (Id.)

“In assessing whether to treat a subsidiary as the alter ego of its parent corporation (or its individual owner(s)), courts must assess whether (1) there is ‘such unity of interest and ownership that the separate personalities of the [subsidiary] corporation and [its parent corporation or individual owner] no longer exist’ and (2) ‘if the acts are treated as those of the [subsidiary] alone, an inequitable result will follow.’” (Santa Clarita Org. for Plan. & Env't, 1 Cal. App. 5th at 1105.) ”An inequitable result follows when the corporate form is used ‘to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose.’” (Id.) “[T]he plaintiff must show ‘specific manipulative conduct’ by the parent toward the subsidiary which ‘relegate[s] the latter to the status of merely an instrumentality, agency, conduit or adjunct of the former.’” (Id.)

However, “treating one corporation as the alter ego of another is ‘an extreme remedy, [to be] sparingly used’ . . . and is to be ‘approached with caution[.]’” (Id.) “This heavy burden rests on the shoulders of the party seeking to pierce the corporate veil.” (Id.)

“Because society recognizes the benefits of allowing persons and organizations to limit their business risks through incorporation, sound public policy dictates that imposition of alter ego liability be approached with caution.” (Toho-Towa Co. v. Morgan Creek Prods., Inc. (2013) 217 Cal. App. 4th 1096, 1107.) “A court may [] disregard the corporate form in order to hold one corporation liable for the debts of another affiliated corporation when the latter ‘is so organized and controlled, and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit, or adjunct of another corporation.’” (Id.)

Where there is “such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own and is but a business conduit for its principal” . . ., the affiliated corporations may be deemed to be a single business enterprise, and the corporate veil pierced.” (Id.) “Under the ‘single business enterprise’ doctrine, separate corporations may operate with integrated resources in pursuit of a single business purpose.” (Id. at 1107-1108.) “The ‘singlebusiness-enterprise’ theory is an equitable doctrine applied to reflect partnership-type liability principles when corporations integrate their resources and operations to achieve a common business purpose.” (Id. at 1108.)

To determine whether to pierce the corporate veil, “courts look to the totality of the circumstances bearing on the relationship between the parent and its subsidiary.” (Santa Clarita Org. for Plan. & Env't, 1 Cal. App. 5th at 1105.) “Those circumstances include, but are not limited to (1) whether the parent and subsidiary commingle funds and other assets, (2) whether the parent has represented to third parties that it is liable for the subsidiary's debts, (3) whether the parent owns 100 percent of the subsidiary's stock, (4) whether the parent and subsidiary use the same offices and same employees, (5) whether the subsidiary is used as the “mere shell or conduit” for the affairs of the parent, (6) whether the subsidiary is inadequately capitalized, (7) whether the parent or subsidiary disregards corporate formalities such as holding board meetings, keeping corporate records, and acting through votes of the corporate board, (8) whether the parent and subsidiary commingle their corporate records, (9) whether the parent and subsidiary have ‘identical directors and officers,’ and (10) whether the parent has diverted the subsidiary's assets to the parent's uses.” (Id. at 1105-1106.)

Plaintiffs provide no evidence to demonstrate that it can satisfy this heavy burden to pierce the corporate veil. Plaintiffs argue that this is a very fact-intensive issue, but provide no evidence to negate the evidence provided by IUC through Locoh’s declaration. Locoh makes the following statements which are unrefuted by any admissible evidence by Plaintiffs: • None of the following persons has ever been a member of IUC, owned any interest in IUC, or were ever authorized to act on behalf of IUC or myself as a control person, principal, agent, director, officer, or other capacity: Gary H.

Hunt; W. Brad Inlow; Edward A. Johnson; D. Fleet Wallace; Gary Wescombe; or Todd A. Mikles. Neither myself nor IUC ever authorized any person relevant to this action to act on our behalf. (Locoh Dec. ¶ 4.) • None of the following entities has ever been a member of IUC, owned any interest in IUC, or were ever authorized to act on behalf of IUC or myself as a control person, principal, agent, director, officer, or other capacity: SCMG Liquidation, Inc. f/k/a Sovereign Capital Management Group, Management Group, Inc. ("SCMG"); SSMF Liquidation, Inc. f/k/a Sovereign Strategic Mortgage Fund, LLC ("SSMF"); Sovereign Capital Management Holdings, LLC ("SCMH"); GCL, LLC ("GCL"); NNN Realty Investors, LLC f/k/a Grubb & Ellis Realty Investors, LLC f/ka Triple Net Properties, LLC ("NNNRI"); NNN Realty Advisors, LLC (“NNNRA”); Daymark Properties Realty, Inc. f/k/a Triple Net Property Realty, Inc. ("DPR"); Daymark Realty Advisors, Inc. ("DRA"); Daymark Residential Management, Inc. ("DRM"); ARPT Property Fund, Inc. f/k/a American Recovery Property Trust, Inc. ("ARPT"); American Recovery Property Advisors, LLC ("ARPA"); American Recovery Property, OP, LP ("ARP OP"); IUC-SOV, LLC; Chequers-Sutter Square, LLC ("Chequers"); Northwood Investors, LLC (''Northwood"); NW Congress Center Owner LLC ("NWCCO"); Northwood Employees LP ("NW 1 "); Northwood Real Estate Partners LP ("NW 2"); or Northwood Real Estate Partners TE LP (''NW 3") (collectively, the "Other Entities"). (Locoh Dec. ¶ 5.) • At all times relevant to the above-entitled action, IUC maintained and continues to maintain its own offices; attorneys, accountants, and tax professionals; personnel; funding, capitalization, insurance, corporate assets and accounts; and records separate from each of the Other Entities.

At all times relevant, IUC's business was a private equity investment company with a focus on commercial real estate and distressed financing. At no time has IUC held itself out as liable for the debts of any of the Other Entities. (Locoh Dec. ¶ 6.) • On August 11, 2011, IUC-SOV, LLC purchased the stock of DRA from Grubb & Ellis Company ("GEC"). . . . IUC did not purchase the stock of DRA or any of its subsidiaries. (Locoh Dec. ¶ 9.) • At the time of the stock acquisition, DRA and its subsidiaries including NNNRI and DPR had approximately 850 employees and offices across the United States.

DRA and its subsidiaries continued to operate after IUC-SOV, LLC’s acquisition of DRA's stock in August 2011 using the existing corporate infrastructure that had been in place for years before the stock acquisition. (Locoh Dec. ¶ 10.) • Following the acquisition of DRA's stock by IUC- SOV, LLC, IUC continued to maintain its own offices, personnel, funding, corporate assets, and records separate from each of the Other Entities, including but not limited to DRA, DPR, and NNNRI. IUC did not have identical business addresses, officers, directors, legal counsel, or purposes as DRA, DPR, or NNNRI.

IUC did not control DRA, DPR or NNNRI. Neither I nor IUC ever commingled funds with DRA, DPR, or NNNRI. Neither I nor IUC maintained records collectively with DRA, DPR, or NNNRI. Neither I nor IUC ever held ourselves out as liable for the debts of DRA, DPR, or NNNRI. (Locoh Dec. ¶ 11.) • Neither I nor IUC usurped or assumed control over the corporate assets of DPR or NNNRI, knowingly failed or refused to capitalize NNNRI with not less than any required amount of funds, or otherwise attempted to conceal the insolvency, if any, of DPR or NNNRI. (Locoh Dec. ¶ 12.) • At no time did I or IUC serve as an officer, director, employee, control person, principal, or agent of DPR or NNNRI. (Locoh Dec. ¶ 13.) • Neither I nor IUC performed the duties of NNNRI or DPR.

Mr. Mikles, together with a management team, managed the day-to-day operations of DRA, NNNRI, or DPR. (Locoh Dec. ¶ 15.) • Neither I nor IUC were involved with appraisals; neither I nor IUC provided any property information to any appraiser in connection with the appraisals of the Western Place Property, the Congress Center Property, or any other property. (Locoh Dec. ¶ 21.)

• Neither I nor IUC received any fees, profits, or other monetary value in connection with the Western Place Property transaction that closed on June 15, 2012. (Locoh Dec. ¶ 23.) • At no time did I or IUC have a record of the Goldman Sachs Appraisal. (Locoh Dec. ¶ 24.) • Neither I nor IUC received any fees, profits, or other monetary value in connection with the Congress Center Property transaction that closed on October 23, 2012. (Locoh Dec. ¶ 26.)

Plaintiffs’ only “evidence” of any unity of interest between IUC and DPR and NNNRI (or any of the other entities) is that Locoh, IUC’s managing member, used an email address with the “infinity-group.com” domain, and the corporate relationship between IUC and DRA. As stated above, this evidence is insufficient to link IUC to the conduct at issue and fails to satisfy any of the elements to support piercing the corporate veil. Plaintiffs have presented no evidence that IUC and the other entities are so integrated as to be considered a single business enterprise, or that IUC utilizes the other entities as mere instrumentalities of its own affairs.

Plaintiffs also fail to provide evidence to demonstrate that an inequitable result will follow if the conduct of DRA, DPR, NNNRI, ARPT or ARPORP, or any of the other entities are treated as those of each entity alone rather than being imputed to IUC.

Based on the foregoing, the court grants IUC summary adjudication as to the Fifth Cause of Action on the grounds that Plaintiffs cannot establish that IUC owed them a fiduciary duty (Issue No. 1(A)) and Plaintiffs cannot establish that IUC is liable for breach of fiduciary duty under an alter ego theory (Issue No. 1(B)).

Defendant IUC is ordered to give notice of this ruling.

2 30-2021-01186203 MOTION 1: DEFENDANT INFINITY URBAN Henkin vs. Mikles CENTURY’S MOTION FOR SUMMARY ADJUDICATION

Defendant Infinity Urban Century, LLC’s (“IUC”) Motion for Summary Adjudication is GRANTED. The court grants IUC’s motion for summary adjudication of to the First Cause of