McCoy v. Kazi Foods CA2/2

California Court of Appeal Nov 26, 2014 No. B247475Unpublished

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Holding. The court held that the plaintiffs failed to sufficiently plead demand futility in their shareholder derivative action, as required under Delaware law, and failed to demonstrate a reasonable possibility of curing the pleading defects.

Issues

Whether the plaintiffs sufficiently alleged facts to excuse the requirement of a pre-suit demand on the board of directors under Delaware law.
Whether the trial court abused its discretion in sustaining the demurrer to the third amended complaint without leave to amend.

Disposition. Affirmed

Quotations verified verbatim against the opinion

“In the context of presuit demand, the burden is upon the plaintiff to overcome that presumption.”

“Because plaintiffs have failed to establish demand futility under either prong of the applicable test under Delaware law, the trial court did not err by sustaining defendants’ demurrer on that basis.”

“The burden of proving a reasonable possibility of amending the complaint to state a cause of action “is squarely on the plaintiff.””

Filed 11/26/14 McCoy v. Kazi Foods CA2/2

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO

PENNY MCCOY et al., B247475

Plaintiffs and Appellants, (Los Angeles County Super. Ct. No. BC461679) v.

KAZI FOODS, INC., et al.,

Defendants and Respondents.

APPEAL from a judgment of the Superior Court of Los Angeles County. Mark V. Mooney, Judge. Affirmed.

Rosen & Associates, Robert C. Rosen and John B. Wallace for Plaintiffs and Appellants.

Gareeb Law Group, Alexander S. Gareeb and Fadi K. Rasheed for Defendants and Respondents Kazi Foods, Inc. and Kazi Management VI, LLC.

Wilson, Elser, Moskowitz, Edelman & Dicker, Carey B. Moorehead, Laura P. Kelly, and Robert Cooper for Defendant and Respondent Zubair Kazi.

In this shareholder derivative action, plaintiffs and appellants Penny McCoy (McCoy) and Chandrashekhar Joshi (Joshi) (collectively, plaintiffs) appeal from the judgment dismissing their claims, brought on behalf of nominal defendant Cryobanks International, Inc. (Cryobanks) against defendants and respondents Zubair Kazi (Kazi), Kazi Foods, Inc. (KFI), and Kazi Management VI, LLC (KMVI) (collectively, defendants), after the trial court sustained, without leave to amend, defendants’ demurrers to plaintiffs’ third amended complaint. We affirm the judgment. BACKGROUND The parties Cryobanks, the nominal defendant in this action, is a Delaware corporation that collected, processed, and stored umbilical cord blood stem cells. It is no longer an operating company. Plaintiffs are shareholders of Cryobanks. Kazi was on the board of directors of Cryobanks from 2001 until September 2008. He is also the managing member of KMVI and the sole shareholder of KFI. Procedural history Plaintiffs filed a total of four complaints in this action. They filed the original complaint on May 19, 2011, and a first amended complaint on December 7, 2011. A second amended complaint was filed on May 9, 2012, after defendants’ demurrer to the first amended complaint was sustained with leave to amend. Second amended complaint Plaintiffs’ second amended complaint alleged 20 causes of action: (1) breach of written contract, (2) breach of implied contract, (3) breach of the covenant of good faith and fair dealing, (4) breach of fiduciary duties, (5) fraud, (6) fraudulent inducement, (7) suppression and concealment, (8) false promise, (9) fraudulent inducement to enter contract, (10) constructive fraud, (11), negligence, (12) negligent misrepresentation, (13) gross negligence, (14) violation of the Corporations Code, (15) unjust enrichment, (16) negligent interference with economic advantage, (17) declaratory relief, (18) unfair competition, (19) usurping corporate opportunity, and (20) misappropriation of trade secrets. Plaintiffs further alleged that it would have been futile for them to make a

McCoy v. Kazi Foods CA2/2

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