Henkin vs. Mikles

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 will not take into consideration Plaintiffs’ new arguments that IUC owes Plaintiffs fiduciary duties as a purported real estate broker. These allegations are not in the operative Second Amended Complaint (“SAC”). 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 owed Plaintiffs any fiduciary duties as either an alleged asset/property manager to Plaintiffs or as a promoter of securities to Plaintiffs.

As relevant to this Motion, Plaintiffs allege in the SAC 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-in-common 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.

In the SAC, Plaintiffs also contend that IUC owes Plaintiffs fiduciary duties “as asset managers and as promoters and solicitors of securities,” “because they recommended and promoted the membership interest Securities[.]” (SAC ¶¶ 83, 97.) “ “A promoter or insider, or a seller of a limited partnership interest, owes a fiduciary duty to the prospective purchaser of such an interest.” (Eisenbaum v. W. Energy Res., Inc. (1990) 218 Cal. App. 3d 314, 322.) “An affirmative duty to disclose material information has been traditionally imposed on corporate 'insiders,' particularly officers, directors, or controlling stockholders.” (Id. at 323-324.) “[I]nsiders must disclose material facts which are known to them by virtue of their position but which are not known to persons with whom they deal and which, if known, would affect their investment judgment.” (Id. at 324.)

In opposition to this Motion, Plaintiffs provide the following evidence to argue that IUC owed fiduciary duties to Plaintiffs as a promoter of securities: • Evidence that ARPT and ARPOP offered and sold securities to Plaintiffs. (Pltfs.’ Evid., Exs. 17 [brochure], 18 [APROP PPM], 42 [closing statement of Congress Center sale to ARPT/Northwood], Ex. 22 [G REIT Liquidating Trust Form 8-K.) • Evidence that Locoh is listed as Chairman of the Board of ARPT, and CEO of ARPA. (Pltfs.’ Evid., Ex. 18, at pp. 1898, 1901 [ARPOP PPM].) • Evidence that implies that IUC owned ARPT through an affiliate, IUC ARPT, LLC. (Pltfs’ Evid., Ex. 39 [buyout agreement for buyout of IUC ARPT, LLC’s interest in ARPA].) • A brochure for ARPT listing Locoh and IUC as "principals" of ARPT. (Pltfs.’ Evid., Exs. 17 [brochure].) • Evidence that Locoh used his infinity-group.com e- mail when conducting his DRA and ARPT activities. (Pltfs.’ Evid., Exs. 16, 18-19, 26-28, 30, 32 [emails].)

The court finds that this evidence is insufficient to raise a triable issue of fact demonstrating that IUC (as opposed to a subsidiary) promoted securities to Plaintiffs. As with the asset and property manager relationship, IUC’s corporate relationship to ARPT or ARPOP is insufficient to impute any fiduciary duties owed by these entities to IUC. (N. Nat. Gas Co., 64 Cal. App. 3d at 991 [“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.”].)

Based on the foregoing, Plaintiffs have failed, as a matter of law, to demonstrate that IUC owed Plaintiffs any fiduciary duties directly as either an asset/property manager or as a promoter of securities.

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 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 on 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.

MOTION 2: DEFENDANT ETIENNE LOCOH’S MOTION FOR SUMMARY ADJUDICATION

Defendant Etienne Locoh’s (“Locoh”) Motion for Summary Adjudication is DENIED. The court DENIES Locoh’s motion for summary adjudication of to the First Cause of Action for Breach of Fiduciary Duty on the grounds that there are triable issues of fact as to whether Plaintiffs can establish that Locoh owed them a fiduciary duty (Issue No. 1(A)), and triable issues of fact as to whether Plaintiffs can establish that Locoh breached any fiduciary duty owed to them (Issue No. 1(C)).

As the court finds that there are triable issues of fact as to duty and breach, the court declines to rule on Locoh’s motion for summary adjudication as to the issues of whether Plaintiffs can establish that Locoh is liable for breach of fiduciary duty under an alter ego theory (Issue No. 1(B)), and whether Plaintiffs can alternatively establish that Locoh is vicariously liable for a breach of fiduciary duty, if any, or aided and abetted a breach of fiduciary duty, if any (Issue No. 1(D)). Ruling on these issues would not completely dispose of “a cause of action, an affirmative defense, a claim for damages, or an issue of duty,” and is thus not the proper subject of summary adjudication. (CCP § 473c(f)(1); Paramount Petroleum Corp. v.

Superior Ct. (2014) 227 Cal. App. 4th 226, 242 [“[I]t is a waste of court time to attempt to resolve issues if the resolution of those issues will not result in summary adjudication of a cause of action or affirmative defense,” “[s]ince the cause of action must still be tried, much of the same evidence will be reconsidered by the court at the time of trial.”].)

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

Locoh seeks summary adjudication as to Plaintiffs’ First Cause of Action for Breach of Fiduciary Duty on the grounds that (1A) Plaintiffs cannot establish that Locoh owed them a fiduciary duty; (1B) Plaintiffs cannot establish that Locoh is liable for breach of fiduciary duty under an alter ego theory; (1C) Plaintiffs cannot establish that Locoh breached any fiduciary duty owed to them; and (1D) Plaintiffs cannot alternatively establish that Locoh is vicariously liable for a breach of fiduciary duty, if any, or aided and abetted a breach of fiduciary duty, if any.

Plaintiffs contend that Locoh cannot seek summary adjudication as to duty or breach, but the court finds that they are the proper subject of summary adjudication as the failure to establish either element would dispose of the First 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.)

“Directors or officers of a corporation do not incur personal liability for torts of the corporation merely by reason of their official position, unless they participate in the wrong or authorize or direct that it be done.” (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal. 3d 586, 595 [emphasis added].) “They may be liable, under the rules of tort and agency, for tortious acts committed on behalf of the corporation.” (Id.)

As a threshold matter, the court will not take into consideration Plaintiffs’ new argument that Locoh owes Plaintiffs fiduciary duties as a purported real estate broker. These allegations are not in the operative Second Amended Complaint (“SAC”). 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.)

However, the court finds that Plaintiffs have identified sufficient evidence to raise triable issues of fact as to whether Locoh owed Plaintiffs any fiduciary duties as an asset/property manager to Plaintiffs and/or as a promoter of securities to Plaintiffs, and whether Locoh breached such duties. As such, the motion for summary adjudication of these issues must be denied.

Issue No. 1(A): There are triable issues of fact as to whether Plaintiffs can establish that Locoh owed them a fiduciary duty

As relevant to this Motion, Plaintiffs allege in the SAC 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 provide the following evidence to argue that Locoh owed fiduciary duties to Plaintiffs as an asset and property manager: • Locoh served as the managing member of Infinity Urban Century, LLC (“IUC”). (Locoh Dec. ¶ 3.) • IUC owned a membership interest in IUC-Daymark Member LLC ("IUC Daymark"). Between August 5, 2011 and October 4, 2012, IUC-Daymark held a 50% membership interest in IUC-SOV, LLC. (Locoh Dec. ¶ 8.) • On August 10, 2011 a joint venture between IUC and Locoh on the one hand, and Sovereign Capital Management Group, Inc. ("SCMG") and Todd Mikles ("Mikles") on the other hand, acquired Daymark Realty Advisors, Inc. ("DRA") and related subsidiary entities, via a stock sale to the joint venture entity IUC-SOV, LLC ("IUC-SOV"). (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.) • After IUC-SOV's acquisition of DRA Etienne Locoh served as Chairman of the Board of Directors of DRA. (Locoh Dec. ¶ 13; Pltfs.’ Evid., Ex. 10 at p. 7 [Engagement Agreement].) • Locoh provided board-level strategy and policy guidance on certain company goals of DRA. (Locoh Dec. ¶ 14.) • DRA acted as Plaintiffs’ asset and property manager because it 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”)).) • Locoh stated in an e-mail that "we represent the TICs.” (Pltfs.’ Evid., Ex. 16. p. 19443.) • Locoh stated at his deposition that he understood that a “manager of the property for the tenant-in-common 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).) • Locoh introduced Brookfield Private Investors, LLC ("Brookfield Financial") to DRA's management team as an investment bank. (Locoh Dec. ¶ 20.) Locoh then assisted Brookfield Financial and DRA in their strategic discussions related to capital. (Id.) • Locoh and DRA engaged Brookfield to roll up Plaintiffs' interests into ARPT. (Pltfs.’ Evid., Ex. 10.)

The court finds that this evidence is sufficient to raise a triable issue of fact as to whether Locoh acted through DRA as an asset and property manager for Plaintiffs with respect to the subject properties and therefore owed Plaintiffs fiduciary duties. The foregoing evidence demonstrates that there are triable issues of fact as to whether Locoh knowingly undertook to act on behalf and for the benefit of Plaintiffs.

In the SAC, Plaintiffs also contend that Locoh, and others, owe Plaintiffs fiduciary duties “as asset managers and as promoters and solicitors of securities,” “because they recommended and promoted the membership interest Securities[.]” (SAC ¶¶ 83, 97.) “The investment adviser/client relationship is one such relationship [that] giv[es] rise to a fiduciary duty as a matter of law.” (Hasso v. Hapke (2014) 227 Cal. App. 4th 107, 140.) “It is a question of fact whether one is either an investment adviser . . . or a party to a confidential relationship that gives rise to a fiduciary duty under common law.” (Id.) “A promoter or insider, or a seller of a limited partnership interest, owes a fiduciary duty to the prospective purchaser of such an interest.” (Eisenbaum v.

W. Energy Res., Inc. (1990) 218 Cal. App. 3d 314, 322.) “An affirmative duty to disclose material information has been traditionally imposed on corporate 'insiders,' particularly officers, directors, or controlling stockholders.” (Id. at 323-324.) “[I]nsiders must disclose material facts which are known to them by virtue of their position but which are not known to persons with whom they deal and which, if known, would affect their investment judgment.” (Id. at 324.)

“It is unlawful for an issuer or any person who is an officer, director or controlling person of an issuer or any other person whose relationship to the issuer gives him access, directly or indirectly, to material information about the issuer not generally available to the public, to purchase or sell any security of the issuer in this state at a time when he knows material information about the issuer gained from such relationship which would significantly affect the market price of that security and which is not generally available to the public, and which he knows is not intended to be so available, unless he has reason to believe that the person selling to or buying from him is also in possession of the information.” (Cal. Corp. Code § 25402.)

Plaintiffs provide the following evidence to argue that Locoh owed fiduciary duties to Plaintiffs as a promoter of securities: • Evidence that ARPT and ARPOP offered and sold securities to Plaintiffs. (Pltfs.’ Evid., Exs. 17 [brochure], 18 [APROP PPM], 42 [closing statement of Congress Center sale to ARPT/Northwood], Ex. 22 [G REIT Liquidating Trust Form 8-K.) • Evidence that Locoh is listed as Chairman of the Board of ARPT, and CEO of ARPA. (Pltfs.’ Evid., Ex. 18, at pp. 1898, 1901 [ARPOP PPM].) • Evidence that implies that IUC owned ARPT through an affiliate, IUC ARPT, LLC. (Pltfs’ Evid., Ex. 39 [buyout agreement for buyout of IUC ARPT, LLC’s interest in ARPA].) • A brochure for ARPT listing Locoh and IUC as "principals" of ARPT. (Pltfs.’ Evid., Ex. 17 [brochure].) • Evidence that Locoh used his infinity-group.com e- mail when conducting his DRA and ARPT activities. (Pltfs.’ Evid., Exs. 16, 18-19, 26-28, 30, 32 [emails].)

The court finds that this evidence is sufficient to raise a triable issue of fact as to whether Locoh promoted securities through ARPT, ARPOP and ARPA, to Plaintiffs and therefore owed Plaintiffs fiduciary duties.

Therefore, the court DENIES Locoh’s motion for summary adjudication as to Issue No. 1(A).

Issue No. 1(C): There are triable issues of fact as to whether Plaintiffs can establish that Locoh breached any fiduciary duty owed to them

Plaintiffs provide the following evidence to argue that Locoh breached his fiduciary duties owed to Plaintiffs: • Locoh was involved in the conceptual discussions surrounding the formation of ARPT, and served as was appointed as Chairman of the Board of ARPT and Chief Executive Officer of ARPA. Locoh also served as the manager of IUC ARPT, LLC, a member of ARPA. (Locoh Dec. ¶ 7.) • Locoh provided high-level strategic advice to DRA relating to any potential recapitalization of the Western Place Property by ARPT. (Locoh Dec. ¶ 22.) • Locoh provided high-level advice to DRA management relating to any potential recapitalization of the Congress Center Property through ARPT. (Locoh Dec. ¶ 25.) • Despite claims that Brookfield Financial was engaged to review offers for the subject properties, the evidence shows that Locoh and DRA engaged Brookfield Financial to identify sources of capital to capitalize ARPOP, for purposes of “restructuring and refinancing of approximately 30 multifamily properties and 60 office properties (the "Properties") currently owned by Tenant-In-Common investors ("TIC Investors") and managed by Daymark (the "Offering").” (Pltfs.’ Evid., Ex. 10 at p. 1.)

A part of the transaction was for “TIC Investors to transfer their tenant-in-common ownership interest in the Properties to newly created Special Purpose Entities ("SPEs") in exchange for limited partnership interest ("Units") in the [ARPOP].” (Id.)

• Locoh provided his opinion “to Brookfield Financial and DRA management relating to a potential buyer of the Congress Center Property, David Werner, when asked and one of the appraisals of the Congress Center Property.” (Locoh Dec. ¶ 25.) • On December 20, 2011, the property lender on the Congress Center property sent a notice of default to DRA, stating NNNRI violated a guaranty on the property loan via its net worth falling below $15 million. (Pltfs.’ Evid., Ex. 6.) • Locoh applied for a loan to purchase Western Place and signed an ARPT resolution to acquire Western Place. (Pltfs.’ Evid., Ex. 13, 21.) • Locoh sent email communications regarding his personal credit check for the ARPT Goldman Sachs loan. (Pltfs.’ Evid., Ex. 19.) • DRA referenced a $40 million appraisal of Western Place in an October 12, 2012 communication to Congress Center owners. (Pltfs.’ Evid., Ex. 40.)

But the property was sold for 34 million based on an older appraisal of $31.55 million. (Id., Exs. 22, 23, 24.) • On March 22, 2012, David Werner Investments (“Werner”) made a $105,000,000 offer for the Congress Center property. (Pltfs.’ Evid., Ex. 11 (Letter of lntent).) On March 29, 2012, a $95 million appraisal of the Congress Center property was issued to DRA by Integra Realty Appraisal Resources. (Plfts.’ Evid., Ex. 12.) On June 4, 2012, Werner through his representative Brian Nagle sent DRA a revised offer of $110 million for the Congress Center property. (Pltfs.’ Evid., Ex. 25.) • On June 10, 2012, Locoh emailed a DRA representative and Mikles, stating he prepared a spreadsheet of Werner closed deals, and stated Werner was the "biggest flipper of contracts I have ever encountered." (Pltfs.

Evid., Exs. 18, 27, 39.) Locoh stated the buildings Werner claimed to have closed on "should get the TICs nervous about his offer." (Id.) The DRA representative then forwarded Locoh's email to William White, who was the DRA portfolio manager for the Congress Center property and also an ARPT Vice President, stating Mr. White "should notify the tics about this." (Id.) • On July 20, 2012 Integra Realty Resources updated its March 2012 $95 million appraisal to $99.7 million, sending the appraisal via email to DRA and Todd Mikles.

Mikles then forwarded the email to Locoh. (Pltfs. Evid., Ex. 29.) On July 24, 2012, Locoh sent an email to DRA management and Brookfield Financial representatives in which he expressed his opinion that the new appraisal of the Congress Center Property "start[ed] to stretch the sensible" and stated they "may also need to go back to this appraisal and question its assumptions.” (Pltfs.’ Evid., Ex. 30.) • On August 22, 2012, DRA and William White sent a communication to Congress Center owners, which stated that Werner failed to produce proof of funds after multiple inquiries and that his offer was no longer being considered, which Plaintiffs contend was a false statement as Werner’s continued interest in the property went unanswered by DRA. (Pltfs.

Evid., Exs. 31 [e-mail exchange with Werner ending with unanswered inquiry of whether: “Assuming Werner can substantiate funds, is there interest in his offer and, if so, when would Daymark respond?”], 34 [DRA communication].) • Plaintiffs obtained a retroactive appraisal for the Congress Center Property valuing it at $114,100,000.00 as of October 1, 2012, from a certified appraiser, Michael Kendzior. (Pltfs.’ Evid., Exs. 36-37.) • Locoh sent an email to Brookfield stating that absent raising funds to acquire the two properties (and another property) that the ARPT REIT may not be successful or "we might as well put a fork in the whole thing." (Pltfs.’ Evid., Ex. 28).

This evidence suggests that Locoh breached his fiduciary duties by withholding material information from Plaintiffs regarding the valuation of the subject properties, making misrepresentations regarding those valuations and competing offers for the properties for his own benefit, failing to adequately disclose that he was on both sides of these transactions and had a conflict of interest, and using the trust of Plaintiffs to obtain the subject properties at below their market value through his companies, ARPT and ARPOP. The court finds that this evidence is sufficient to raise a triable issue of fact as to whether Locoh breached his fiduciary duties with respect to Plaintiffs as Plaintiffs’ asset and property manager and/or as a promoter of securities.

Locoh argues that he is not liable for breach of any fiduciary duty because of the business judgment rule. Cal. Corp. Code § 309 states that when a director acts in the best interests of the corporation and its shareholders “as an ordinary person in a like position would use under similar circumstances,” he “shall have no liability based upon any alleged failure to discharge the person's obligations as a director.” (Cal. Corp. Code §§ 309(a)-(c).) Generally, “directors are immune from liability on the claim [for breach of fiduciary duty] based on the business judgment rule.” (Berg & Berg Enters., LLC v.

Boyle (2009) 178 Cal. App. 4th 1020, 1044.) However, “[a]n exception to the presumption afforded by the business judgment rule accordingly exists in ‘circumstances which inherently raise an inference of conflict of interest’ and the rule ‘does not shield actions taken without reasonable inquiry, with improper motives, or as a result of a conflict of interest.’” (Id.)

The evidence above raises triable issues of fact as to whether Locoh acted in the best interests of these entities and/or Plaintiffs, whether he acted with improper motives and whether there was a conflict of interest as Locoh was on both sides of these transactions.

The court also finds that the disclosure in one brochure that Locoh was a principal of ARPT is insufficient to establish as a matter of law that Plaintiffs waived any conflict of interest with respect to the subject property transactions. Whether the brochure was received and by which Plaintiffs are questions of fact.

In light of the multiple triable issues of fact as to the issue of breach, the court denies Locoh’s motion for summary adjudication as to Issue No. 1(C).

Defendant Locoh is ordered to give notice of this ruling.