1. Demurrer by Defendants to Plaintiffs’ 1st Amended Complaint Amended Complaint [“FAC”]:

The demurrer is sustained without leave to amend as to the causes of action against Artz in his individual capacity.

The demurrer is sustained without leave as to Morris Cerullo World Evangelism [“MCWE”] as to the 3rd and 6th causes of action and sustained with 21 days leave to amend as to the 1st, 2nd, 4th and 5th causes of action.

(a) As to Artz:

Sustained without leave to all of the causes of action against Artz in his individual capacity.

(i) At the outset defendant Artz demurred on the basis that he cannot be sued as an individual, but only as a Trustee of the Trust (in which capacity he has been sued as well.)

(ii) Plaintiffs concede the argument has merit and seek leave to amend based on obtaining new facts that show defendant Artz received a “personal benefit” to make him liable on an individual basis. They give no hint in their opposition, however, of what these facts are. Mr. Artz signed the contract as the Trustee only, and not in his individual capacity. Thus there is no privity of contract to bear liability under the contract. [See Roth v. Malson (1998) 67 Cal.App.4th 552, 557.] The remaining 2nd through 5th causes of action in which he is named are essentially conceded as failing also.

(iii) The demurrer is also sustained as Artz as an individual without leave because plaintiffs have not indicated the manner in which it is proposed to amend nor the nature of the proposed amendment. [See Schultz v. Steinberg 182 Cal.App.2d 134, 140-41.] The court notes that Artz is stilled named as a defendant in his capacity as the Trustee.

(b) As to MCWE with leave:

The demurrer is sustained with 21 days leave to amend as to plaintiff Newport Harbor Ventures, LLC as to the 1st cause of action for breach of contract and the 2nd cause of action for breach of the covenant of good faith and fair dealing.

(i) Newport Harbor demurs on the ground that Plaintiff NHV has failed to allege it suffered any damages as a result of defendants’ breach. The FAC alleges that only Vertical Media incurred costs and expenses in connection with the breach of the Asset Management Agreement. (FAC ¶ 7.)

Plaintiff NHV in opposition asserts that it alleges that Newport Harbor suffered nominal damages sufficient to state the cause of action under Sweet v. Johnson (1959) 169 Cal.App.2d 630, 632-33. Plaintiff’s authority however, does not support that the element of damages has been stated. Nominal damages are proper if the object of the action is to determine a question of permanent right or if the plaintiff would be entitled to a cost award. [See Costerisan v. Melendy (1967) 255 Cal.App.2d 57, 61.]

Here, in their FAC, plaintiffs are alleging actual damages were suffered in the amount of $712,923.75, plus attorney’s fees of more than $250,000. But, plaintiffs allege in their FAC that Vertical incurred these losses and not Newport Harbor. Accordingly, since plaintiffs allege they did incur actual losses, their claim that Newport Harbor suffered only nominal damages of $1 is disingenuous. Further, plaintiffs do not seek the necessary requirement to allege nominal damages, i.e., the court’s determination of a permanent right as to Newport Harbor or that Newport Harbor is entitled to a cost award in this action based on a finding of breach of the Asset Management Agreement.

(ii) Since the 2nd cause of action depends for viability on the validity of the 1st cause of action, the demurrer is sustained as this cause of action also with 21 days leave to amend.

(iii) The demurrer is sustained with 21 days leave to amend as to plaintiffs Newport Harbor Ventures, LLC and Vertical Media Group, Inc. as to the fourth cause of action for negligence and fifth cause of action for fraud.

(iv) Plaintiffs have not pled any omission or wrongdoing by defendants that was separate from or not a term of the contract defendants were to perform. Breaching a duty to plaintiffs’’ financial well-being in connection with the Agreement is not a recognized independent duty outside the contract to support a claim of negligence. The parties herein contracted apparently at arm’s length, thus defendants owed no duty to protect plaintiffs financial well-being. Because there is no independent duty alleged that was not required in performance of the contract itself, plaintiffs have failed to state a basis for a negligence cause of action independent of a breach of contract.

(v) There are essential facts missing to sufficiently state a claim for fraud in the inducement.
Plaintiffs have failed to allege the names of those persons who allegedly made the fraudulent inducing statements. Although the cause of action is brought against defendant Artz, it cannot be determined if he was the person making the statements to negotiate the Agreement. Plaintiffs do not allege when and where the allegedly fraudulent statements were made to give the factual foundation that the statements were made knowing that defendants intended to enter into a subsequent secret deal with “HIM” for the purpose of defrauding plaintiffs and denying them the ability to recover their fees and costs. Plaintiffs do not even allege whether these inducing statements were oral or in writing. As for any concealing facts, plaintiffs fail to allege facts showing that defendants had a scheme or plan with “HIM” based on facts detailing prior conversations and/or secret agreements with “HIM” prior to entering into the Asset Management Agreement with plaintiffs. There are no timeframes alleged as to the date of the Asset Management Agreement and the Settlement Agreement with “HIM” to create a nexus in time to support intent. Plaintiffs have alleged theories and conclusions but no facts to support those thoughts

(c) As to MCWE without leave to amend:

The demurrer is sustained without leave to amend as to plaintiffs Newport Harbor Ventures, LLC and Vertical Media Group, Inc., as to the third cause of action for Breach of fiduciary duty and sixth causes of action for declaratory relief.

(i) Plaintiffs have failed to allege a fiduciary relationship existed between them and defendants. Plaintiffs have not alleged defendants voluntarily agreed to act on plaintiffs’ behalf or that defendants controlled any of plaintiffs’ affairs. In fact, the opposite is alleged. The terms of the Asset Management Agreement state that plaintiffs agreed to handle the management of the property on defendants’ behalf and for defendants’ benefit. By these terms, plaintiffs are the parties who exercised control over defendants’ affairs and would owe defendants a duty under the contract. Plaintiffs allege only that defendants agreed to allow plaintiffs to act on defendants’ behalf but that defendants interfered with plaintiffs’ ability to perform. This amounts to a breach of the contract terms.

(ii) Plaintiffs fail to allege an actual controversy relating to the legal rights and duties of the respective parties to state a cause of action for declaratory relief. Plaintiffs allege that defendants illegally executed the Settlement Agreement with the sub-lessee, which is the basis for the breach of contract cause of action. They further state that pursuant to the Agreement, they are entitled to their reasonable fees and costs. This is the same as their stated damages for the breach of contract. Thus, plaintiff Vertical Media Group has stated the first cause of action for breach of contract, which means there is no actual controversy between plaintiffs and defendants that requires an adjudication of their respective rights, obligations, and liabilities of the parties. Because the issue raised can be determined in the underlying contract and/or tort actions, assuming they can be pled sufficiently, the declaratory relief cause of action is wholly derivative of the other causes of action asserted by both plaintiffs.

Defendants to give notice of ruling.