TIFFS’ SECOND AMENDED COMPLAINT TENTATIVE RULING:

The Motion to Strike brought by defendants Lori Ann Bluett; Bluett & Associates, Inc.; and Juno Commercial Real Estate, Inc. to the Second Amended Complaint of Kera Oakland, LLC is GRANTED in part (as to the punitive damages based on breach of fiduciary duty and constructive fraud) and DENIED in part (as to the punitive damages for fraud and the claims for attorney fees) without leave to amend.

This case involves numerous parties, multiple complaints and cross-complaints, and a large number of causes of action. While not every aligned party is named in every cause of action, as argued by the parties and as jointly represented by counsel, the parties in this case generally break down into three categories:

1. the Kera parties (Raquel Remedios; Kera Oakland, LLC; Kera Plaza LLC; and Kera Vacaville, LLC)

2. the Arce parties (George Arce, Jr.; Arce Hanford LLC; Arce Oakland LLC; and Arce Vacaville, LLC)

3. the Bluett parties (Lori Ann Bluett; Bluett & Associates, Inc. dba Bluett Commercial; Juno Commercial Properties, Inc.; and Juno Commercial Real Estate, Inc.).

This action arises from alleged mismanagement of certain commercial properties that were originally jointly owned by Kera and Arce. The properties were located in Oakland, Hanford, and Vacaville. The initial dispute in this litigation was between Kera and Arce over whether Arce had been mismanaging the properties—specifically, the Oakland Property. Foreclosure proceedings were allegedly initiated against the Oakland Property, and a bankruptcy petition followed.

During the bankruptcy proceedings, Bluett was allegedly appointed to serve as Receiver and contracted with Juno to have Juno act as the property manager during the receivership.

When the bankruptcy receivership ended, it is alleged that Kera, Arce, or both assented to an agreement with Bluett to have Bluett continue on in the role of property manager while Kera and Arce worked out a restructuring of their properties and business transactions.

As part of that restructuring, Kera and Arce agreed to put the Oakland Property (with its cash flow, rental value, and mortgage delinquency issues) totally under the control of Arce. To do so, Arce negotiated a new mortgage loan deal that would release the personal guarantee provided by Kera. However, Bluett allegedly disclosed to the Lender that the Oakland Property had fallen into disrepair, and the Lender allegedly raised the amount of money needed to complete the new loan transaction.

After the new loan transaction fell through, the Lender finalized foreclosure proceedings on the Oakland Property. Six days after the foreclosure proceedings were completed, Bluett, acting on behalf of the Lender, filed an insurance claim on an insurance policy that had been paid for by Kera and/or Arce—not by the Lender.

Now, Kera and Arce are separately suing Bluett for fraud, breach of fiduciary duty, and the like for failing to disclose that Bluett had a longstanding relationship with the Lender, was loyal to the Lender, and used the same attorneys as the Lender. In addition, Kera and Arce are suing Bluett for failing to seek insurance proceeds when Kera and Arce still owned the Oakland Property and for failing to disclose to Kera and Arce that Bluett had filed a claim for insurance proceeds on behalf of the Lender when those funds should have been paid to Kera and Arce.

A party may move to strike irrelevant, false, or improper matter. C.C.P. § 436. To be proper, allegations of punitive damages must allege facts that show malice, fraud, or oppression, with “malice” and “oppression” being defined to include some form of despicable conduct (or intent to injure). Civil Code § 3294. Here, the facts set forth above describe a fraud. Kera’s Second Amended Complaint (f: 12/18/17), ¶¶ 83-100 and 171-211; Arce’s Second Amended CrossComplaint (f: 12/18/17), ¶¶ 17-35 and 60-91. They also describe oppressive acts to cajole and corral a certain result—i.e. maximizing the profits of a lucrative client (i.e. the Lender) at the expense of fiduciaries (i.e. Kera and Arce). As such, the facts alleged support a claim for punitive damages.

Bluett argues that the punitive damages allegations lump all Bluett entities together, which is improper for alleging punitive damages against a corporate entity. However, the allegations as drafted target the actions of Lori Bluett, and it is alleged that Lori Bluett is the officer and/or director of each of the Bluett entities and/or that the Bluett entities are her alter egos. Kera’s Second Amended Complaint (f: 12/18/17), ¶¶ 11-14 and 17; Arce’s Second Amended CrossComplaint (f: 12/18/17), ¶¶ 7 and 9; see CACI Nos. 3940-3949. Bluett also moves to strike Kera’s claim for punitive damages based on Kera’s claim for Breach of Fiduciary Duty & Constructive Fraud. This issue was previously considered by this Court with respect to a punitive damages claim my by Arce on the exact same cause of action. While Kera and Arce are separate parties who have causes of action against one another, they largely appear to be in alignment with regard to their respective claims against Bluett. Indeed, many of their claims against Bluett are virtually identical. Because Kera presents no new facts or law on this issue, the Court maintains its prior ruling that punitive damages, at least as alleged against Bluett in this case on a theory of breach of fiduciary duty and constructive fraud, are not proper and shall be stricken.

Bluett moves to strike Kera’s claims for attorney fees on the grounds that they are not supported by contract, statute, or law. Kera counters with two arguments.

First, Kera argues that it entered into an oral agreement with Bluett to have Bluett continue on in the role of Property Manager, and that, one of the terms of that oral agreement was an agreement to adopt the language of the written agreement that existed between Bluett & Associates, Inc. and Juno. (For clarity, it is alleged that when Bluett was acting as Receiver, Bluett contracted with Juno to have Juno act as the Property Manager.) This argument by Kera is a misdirect. Specifically, Kera is arguing that there is a contractual basis for its attorney fee claim when the cause of action for breach of contract does not claim attorney fees. Kera’s Second Amended Complaint (f: 12/18/17), ¶ 189. Kera’s attorney fee allegation is made with respect to Kera’s cause of action for indemnity and declaratory relief. Kera’s Second Amended Complaint (f: 12/18/17), ¶ 207. The language of that cause of action describes the attorney fees claim as based on the “proximate result of the negligence” or the fact that “[a]ny negligence or fault on the part of Kera Oakland is passive and secondary and derivative from the conduct of the Bluett Parties.” Kera’s Second Amended Complaint (f: 12/18/17), ¶¶ 206-207 (emphasis added). Notably, Bluett’s own cross-complaint alleges that the agreement for Bluett (or, more specifically, Juno Commercial Real Estate, Inc.) to remain as property manager after the receivership ended did include a basis for claiming attorney fees. Bluett’s Cross-Complaint (f: 11/13/17), ¶ 32. And, Bluett itself alleges Kera (among others) is liable to Bluett for attorney fees under a claim for breach of contract. Bluett’s Cross-Complaint (f: 11/13/17), ¶ 35. On this basis, Kera is claiming that Bluett cannot argue that a contractual basis for attorney fees does not exist. The Court agrees. As a matter of judicial estoppel, Bluett cannot simultaneously argue in this proceeding that there was no contractual basis for Kera to claim attorney fees from Bluett while Bluett is claiming a contractual basis for it to claim attorney fees against Kera.