2017-00215260-CU-BC

Aaron Timm vs. Quicklegal Practice Management, Inc.

Nature of Proceeding: Hearing on Demurrer to Unverified First Amended Complaint

Filed By: Zal, Cyrus

*** If oral argument is requested, the parties must at the time oral argument is requested notify the clerk and opposing counsel of the causes of action that will be addressed at the hearing. The parties are also reminded that pursuant to local court rules, only limited oral argument is permitted on law and motion matters. ***

Defendants Quicklegal Practice Management, Inc. (“Quicklegal”), Lawtova, Inc. (“Lawtova”), Cyrus Zal (“Zal”), Sarah Morrell (“Morrell”), and Derek Bluford’s (“Bluford”) (collectively “Defendants”) demurrer to Plaintiff Aaron Tim’s First Amended Complaint (“FAC”) is ruled upon as follows.

Defendants’ request for judicial notice is granted, with the exception of Exhibit 2 (the Bill of Sale). According Defendants, Exhibit 2 is purportedly the April 2016 Agreement that was referenced in the FAC, but not attached thereto. Plaintiff objects to the request for judicial notice on the ground that the document is not capable of accurate determination by this Court or within common knowledge. Plaintiff’s objection is
SUSTAINED.

Overview

This action arises from Plaintiff’s purchase of a legal services business named California Legal Pros (“Business”). Morrell and Bluford are alleged to be the owner and operators of the Business. Plaintiff alleges that Morrell and Bluford held out the Business as generating an annual revenue of $375,481 with a net income of $94,692.

Plaintiff purchased the Business for $220,000 pursuant to a written agreement in July 2014. According to Plaintiff, the Business lost money, “[d]espite maintaining the exact same advertising strategy, number employees, and offices as were maintained by Bluford and Morrell, the Subject Business was not able generate one dollar of income, let alone the $7,891 per month which Morrell and Bluford had claimed.” (FAC, ¶ 16.)

In 2016, Plaintiff and Bluford began discussing the potential purchase of the Business by Quicklegal, where Bluford was CEO. Bluford explained to Plaintiff that Quicklegal had recently received purchase offers of $15 million from LegalZoom and $40 million from Rocket Lawyer, but Bluford wanted to continue to operate and build Quicklegal.

On April 1, 2016, Plaintiff sold the Business to Quicklegal. Pursuant to the April 2016 Agreement, Plaintiff would receive: (a) 1% of the shares of Quicklegal; (b) 10% of the monthly profits generated from the Business as operated by Quicklegal and (c) $220,000 due immediately if the Business were sold separately from Quicklegal. Plaintiff alleges that he has received none of the 10% profits.

In October 2016, Plaintiff discovered that Lawtova owned and operated the Business. Plaintiff demanded the $220,000 due to the sale of the Business, but he has not received the payment.

Plaintiff alleges that Bluford is also the founder of Lawtova. Bluford and Morrell are married. Plaintiff alleges that Quicklegal is the alter ego of Zal, Morrell, and Bluford. He further alleges that Lawtova is the alter ego of Zal, Morrell, and Bluford.

Plaintiff filed this action on 7/10/2017. After meet and confer efforts, Plaintiff filed a voluntary dismissal on 4/23/2018, dismissing the negligence cause of action and Zal, Morrell, and Bluford from the breach of contract cause of action.

The remaining causes of action are: (1) breach of contract (against Quicklegal and Lawtova), (2) negligent misrepresentation (against Morrell and Bluford), (3) fraud

(against Morrell and Bluford), (4) conspiracy to commit fraud (against Morrell and Bluford), (5) negligent misrepresentation (against Bluford), (6) fraud (against Bluford),

(7) conspiracy to commit fraud (against all Defendants), (8) conversion (against all Defendants), and (9) Deceptive Business Practices (against all Defendants).

COA 1: Breach of contract (against Quicklegal and Lawtova)

The demurrer on the ground that Plaintiff fails to allege sufficient facts that Lawtova was a party to the 2016 Agreement is SUSTAINED with leave to amend. Here, Plaintiff alleges that he entered into the 2016 Agreement with Quicklegal. There is no allegation that he entered into the contract with Lawtova. To the extent Plaintiff has alleged alter ego liability, Plaintiff has alleged that Lawtova is the alter ego of Zal, Morrell, and Bluford, but not that Lawtova is the alter ego of Quicklegal – the party to the contract.

Defendants’ remaining grounds for demurrer are OVERRULED. Defendants’ arguments are based on facts outside of the FAC and which are not judicially noticeable. Such factual determinations are outside the scope of a demurrer. Moreover, the allegations are not so uncertain that Defendants cannot frame a response. Demurrers for uncertainty are disfavored and are only granted where the complaint is so muddled that the defendant cannot reasonably respond. The favored approach is to clarify theories in the complaint through discovery. (See Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616; 1 Weil & Brown, Civil Procedure Before Trial (Rutter 2008), sec. 7:84, p. 7(l)-37.)

COA 2: Negligent Misrepresentation (against Morrell and Bluford)

This cause of action is based on Morrell’s and Bluford’s representations that the Business generated an annual income of $94,692.

Defendants demur the ground that the cause of action is barred by the two-year statute of limitations. (CCP §335.1.) Plaintiff filed this action on 7/10/2017.

Here, Plaintiff alleges that the statement was made around June or July 2014. He further alleges that “[s]tarting on July 10, 2014, the first day that Plaintiff operated the Subject Business, it lost money. In the second half of July 2014, the loss was over $7,000. For the month of August 2014, the Subject Business lost over

$14,000.” (FAC, ¶ 16.) “Plaintiff made substantial adjustments to reduce the Subject Business’s monthly losses throughout the remainder of 2014. Despite these efforts, in 2014 alone, he absorbed $44,361 in operating losses from the Subject Business.

Throughout the second half of 2014, Plaintiff communicated the status of the Subject Business, including its sizable losses, to Bluford via emails and phone calls.” (FAC, ¶ 17.) Given these alleged facts, the statute of limitations accrued at least by the end of 2014. Thus, the two-year statute of limitations expired by the end of 2016.

Plaintiff argues in opposition that the statute of limitations was tolled to October 2016 when he discovered that Lawtova owned and operated the Business, which triggered the obligation to pay. Plaintiff’s argument misses the mark as this cause of action is based on representations regarding the Business’ annual income, not the payment of the $220,000 for the purported sale of the Business to Lawtova.

The demurrer is SUSTAINED with leave to amend.

COA 3: Fraud (against Morrell and Bluford)

This cause of action is based on Morrell’s and Bluford’s representations that the Business generated an annual income of $94,692.

Defendants demur the ground that the cause of action is barred by the three-year statute of limitations. (CCP §338(d).)

The demurrer is OVERRULED. As explained above, given the alleged facts, the statute of limitations accrued at least by the end of 2014. Thus, the three-year statute of limitations did not expire until the end of 2017. Plaintiff filed this action on 7/10/2017, which is within the three-year period. The demurrer for uncertainty is also OVERRULED. Plaintiff need not plead the exact discovery date of the fraud. “A demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. In order for the bar of the statute of limitations to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.” (Guardian North Bay, Inc. v. Superior Court (2001) 94 Cal.App.4th 963, 971-972.)

COA 4: Conspiracy to Commit Fraud (against Morrell and Bluford),

The conspiracy at issue in this cause of action is the conspiracy to commit fraud regarding the sale of the Business.

Defendants demur on the same grounds as the third cause of action for fraud. The demurrer is OVERRULED for the same reasons set forth for the third cause of action.

COA 5: Negligent Misrepresentation (against Bluford)

This cause of action is based on the Bluford’s representation in 2016 that Quicklegal had recently received purchase offers of $15 million from LegalZoom and $40 million from Rocket Lawyer, but Bluford wanted to continue to operate and build Quicklegal.

Defendants demur the ground that the cause of action is barred by the two-year statute of limitations. (CCP §335.1.)

The demurrer is OVERRULED. The complaint was filed on 7/10/2017 – less than two

years after the statement was allegedly made.

COA 6: Fraud (against Bluford)

This cause of action is based on the Bluford’s representation in 2016 that Quicklegal had recently received purchase offers of $15 million from LegalZoom and $40 million from Rocket Lawyer, but Bluford wanted to continue to operate and build Quicklegal.

Defendants demur the ground that the cause of action is barred by the three-year statute of limitations. (CCP §338(d).)

The demurrer is OVERRULED. The complaint was filed on 7/10/2017 – less than three years after the statement was allegedly made. The demurrer for uncertainty is also OVERRULED.

COA 7: Conspiracy to Commit Fraud (against all Defendants)

This cause of action is based on a purported conspiracy to transfer the Business from Quicklegal to Lawtova, and not disclosing the transfer to Plaintiff in order to avoid paying Plaintiff the $220,000 and to generate revenue for Lawtova from the Business such that the Defendants could present a revenue-generating business in raising capital from unknowing investors.

Defendants demur the ground that the cause of action is barred by the three-year statute of limitations. (CCP §338(d).)

The demurrer on statute of limitations is OVERRULED. Plaintiff alleges that on April 1, 2016 he sold the Business to Quicklegal. In October 2016, Plaintiff discovered that Lawtova owned and operated the Business. Thus, the filing of the complaint in July 2017 is within the three year statute of limitations. The demurrer for uncertainty is also OVERRULED.

COA 8: Conversion (against all Defendants)

Plaintiff alleges that he was a shareholder in Quicklegal and had a right to receive

profits generated from the Business. He further alleges that he had a right to the

$220,000 when the Business was sold to Lawtova. Plaintiff alleges Defendants have

deprived him of his right to receive the share of profits and the $220,000.

Defendants demur on the ground that: (1) Plaintiff fails to allege that the Business generated any profits while it was operated by Quicklegal, (2) there is no allegation that Quicklegal sold the Business as a separate asset to another company, and (3) Plaintiff fails to plead an exact amount of money that was converted.

The demurrer is OVERRULED.

Plaintiff alleges that Quicklegal generated “revenue” from the Business. (FAC, ¶ 20.) Defendants insist that the terms “revenue” and “profits” have different meanings. To support their argument, Defendants cite to the purported 2016 Agreement (attached as Exhibit 2 to the RJN). The Court, however, has denied Defendants’ RJN as to this exhibit. Nonetheless, even if the Court granted the RJN, the Court only accepts the fact of their existence, not the truth of their contents. (See Professional Engineers v. Dep’t of Transp. (1997) 15 Cal.4th 543, 590 [judicial notice of findings of fact does not mean that those findings of fact are true]; Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 120-121.)

The Court is also not persuaded that Plaintiff must allege that Quicklegal sold the Business as a separate asset to another company. Defendants point to paragraph 19 of the FAC which states “[p]ursuant to the April 2016 Agreement, [Quicklegal] would receive the Subject Business and in exchange Plaintiff would receive: . . . (c) $220,000 due immediately if the Subject Business were sold separately from [Quicklegal].” Defendants insists that Plaintiff’s allegation that Defendants “transferred” the Business from Quicklegal to Lawtova (FAC, ¶ 29) is insufficient, and that Plaintiff must allege the sale as a separate asset. Plaintiff’s allegation in paragraph 19 of the FAC does not specifically require the Business be sold as a separate asset to another company. While Defendants may interpret the allegation in a certain way, their interpretation is not grounds to sustain a demurrer.

Moreover, Plaintiff has alleged that Defendants converted the $220,000 payment owed to him. The fact that Plaintiff has not specifically identified the amount of profits that Defendants have converted is of no consequence because the demurrer will not completely dispose of the cause of action.

Given the above, the demurrer is OVERRULED.

COA 10: Deceptive Business Practices

Defendants did not demur to this cause of action.

Where leave to amend is granted, Plaintiff may file and serve a second amended complaint (“SAC”) by no later than June 4, 2018, Response to be filed and served within 30 days thereafter, 35 days if the SAC is served by mail. (Although not required by any statute or rule of court, Plaintiff is requested to attach a copy of the instant minute order to the SAC to facilitate the filing of the pleading.)