2016-00199650-CU-BC

Ezatullah Ghulam vs. Mohamad Aalemkhiel

Nature of Proceeding: Motion to File Third Amended Complaint

Filed By: Vorobets, Alla V.

Plaintiff Ezatullah Ghulam’s motion for leave to file a third amended complaint is

GRANTED.

Plaintiff seeks to file a third amended to complaint to: (1) add his brother Zinatulla Gelaman (“Zinatulla”) as a plaintiff, (2) add 17 new causes of action, including ones asserted only by Zinatulla, and (3) additions to the prayer for relief.

Trial was scheduled for July 9, 2018. The presiding judge has granted Plaintiff’s motion to continue trial and the trial date has been vacated and the case sent to back to the trial setting process.

Plaintiff’s counsel explains that she is Plaintiff’s third attorney. According to Plaintiff’s attorney, the previous attorneys failed to plead all of the necessary and proper claims on behalf of all appropriate parties. She was retained in February 2018 and began reviewing the voluminous documents in this action. Plaintiff indicates that Defendants would agree to a trial continuance “if and when Plaintiff is permitted to file his amended complaint.”

In opposition, Defendants argue that the motion should be denied because of Plaintiff’s delay and prejudice. This case was initiated in 2016. The action proceeded to trial in September 2017, however, a mistrial was declared. Moreover, Plaintiff was aware of the identity of his brother and possible involvement in the action. Indeed, in October 2017, Plaintiff (represented by his former counsel, Sam Fareed) filed a motion to join Zinatulla as a new plaintiff. (ROA 134.) The Court denied the motion without prejudice due to Plaintiff’s failure to comply with CCP §473(c) and CRC Rule 3.1324. (ROA 172.) Plaintiff did not file this motion until May 2018. Adding Zinatulla and 9 new causes of action asserted by him at this late date will require all new discovery, none of which has been at issue.

Lastly, Plaintiff desires to add 7 new causes of action for various labor code violations. Defendants proffer evidence that Plaintiff’s discovery responses showing that he was not an employee of the East Market and Restaurant, and failed to identify the East Market and Restaurant or any of the Defendants as his prior employers.

Although there appears to be significant delay in naming Zin as a plaintiff, and new discovery will be required on all the new causes of action alleged, given that the trial date has been vacated, the parties now have additional time to conduct the discovery and file any appropriate motions.

Challenges to the merits of the amendments are more appropriate in pleading or evidentiary motions.

The Court notes that the proposed third amended complaint includes a fraudulent concealment COA against East Eagle and a breach of oral contract COA against Mohamad Aalemhkiel. The Court has sustained without leave to amend these COAs against these defendants. Therefore, these COAs have been disposed of and will no

longer be at issue in this action. The Court hereby strikes from the Third Amended Complaint Plaintiff’s fraudulent concealment COA against East Eagle and breach of oral contract COA against Mohamad Aalemhkiel.

Plaintiff shall file and serve the third amended complaint by no later than June 18, 2018.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.

Item 4 2016-00199650-CU-BC

Ezatullah Ghulam vs. Mohamad Aalemkhiel

Nature of Proceeding: Hearing on Demurrer to the Second Amended Complaint (Shakhofa

Filed By: Coleman, Michael

Defendant Shakhofa Aalemkiel’s demurrer to Plaintiff Ezatullah Gulam’s Second Amended Complaint (“SAC”) is ruled upon as follows.

The Court fully incorporates hereto the “Overview” section from Defendant Mohamad Aalemkhiel’s (“Mohamad”) demurrer.

Defendant demurs to the third cause of action for fraudulent concealment on the grounds Plaintiff fails to allege that Shakhofa owed him a duty to disclose.

Generally, in a concealment action, a duty to disclose arises from a fiduciary or confidential relationship with the parties. (Warner Constr. Corp. v. L.A. (1970) 2 Cal.3d 285, 294.) “In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure of material facts may arise in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead;

(2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff.” (Id.)

Plaintiff contends that he has sufficiently alleged fraudulent concealment pursuant to Warner Construction. The Court agrees. Here, Plaintiff alleges the he and Gelaman contributed $65,000 for start-up funds. (SAC, ¶ 47.) On or around April 2015 through March 2016, Shakhofa withdrew approximately $133,711 from East Eagle’s bank account. (SAC, ¶ 68.) Shakhofa intentionally concealed or suppressed this fact. (SAC, ¶ 69.) Plaintiff was not aware of this fact. (SAC, ¶ 70.) Additionally, Mohamad owned and controlled East Eagle, deposited and withdrew money from East Eagle’s

bank account(s), managed day-to-day operations of East Eagle, and gave “detailed instructions to Shakhofa on every detail concerning East Eagle and/or with respect to any and all action to be undertaken.” (SAC, ¶ 8.) Mohamad misrepresented that he would need to maintain the business financials and banking because of his accounting and book keeping skills (SAC, ¶ 53) and concealed the fact that the business generated profits.

At this stage of the proceedings, these allegations are sufficient. The demurrer is OVERRULED.

Given that the Court has overruled the demurrer, Defendant would ordinarily be required to file an answer to the SAC. However, because the Court has granted Plaintiff’s motion for leave to file a third amended complaint, Plaintiff has been provided with an opportunity to file and serve a third amended complaint by June 18, 2018. Therefore, Defendant need not file an answer to the SAC at this time. In the event Plaintiff does not file and serve a third amended complaint by June 18, 2018, Defendant shall file and serve an answer to the SAC by June 27, 2018.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.

Item 5 2016-00199650-CU-BC

Ezatullah Ghulam vs. Mohamad Aalemkhiel

Nature of Proceeding: Hearing on Demurrer to the Second Amended Complaint (Mohamad

Filed By: Coleman, Michael

*** 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. ***

Defendant Mohamad Aalemkhiel’s demurrer to Plaintiff Ezatullah Gulam’s Second Amended Complaint (“SAC”) is ruled upon as follows.

Overview

This case arises from a joint investment in a grocery store and restaurant. Plaintiff alleges that in early 2015, he and his brother Zinatulla Gelaman (“Gelaman”) were approached by Defendant to partner in opening an Afghan Restaurant/Grocery Store. Plaintiff and Defendant agreed to formalize the terms of their business through a Partnership Agreement. For various reasons, Defendant told Plaintiff that he needed to put the Partnership Agreement in his wife, co-defendant Shakhofa Aalemkeil’s

(“Shakhofa”) name. Plaintiff executed a power of attorney with Gelaman who had agreed to invest in the grocery store but lives in the U.K. Gelaman was going to allow Plaintiff to work on his behalf in the Partnership, but wanted to be listed on any agreements and/or documents.

On March 18, 2015, Mohamed emailed a draft of the Partnership Agreement to Plaintiff. The Partnership Agreement was already signed by Shakhofa. Plaintiff then forwarded the completely executed Partnership Agreement back to Defendant.

Plaintiff alleges that in early 2015 he entered into an oral contract with Defendant to open a grocery store as business partners-East Market and Restaurant. Under the terms of the agreement, Plaintiff, among other things, promised to provide half- of-the initial start-up capital as well as carry the 50% burden of day-to-day operation. Under the terms of the agreement, Defendant, among other things, promised to provide half-of-the initial start-up capital as well as carry the 50% burden of day-to-day operation. Each partner would be entitled to 50% of the profits. Plaintiff alleges that despite their oral agreement, the Partnership Agreement had to identify share of profits as 51% for co-Defendant East Eagle, LLC (“East Eagle”) and 49% for Gelaman because Gelaman did not hold a U.S. citizenship.

Although Plaintiff and Gelaman had originally intended to start a new limited liability company, Mohamad informed them it was unnecessary because East Eagle was already open, and he would add Plaintiff and Gelaman to East Eagle. Defendant informed Plaintiff that it would take 90 days for the County to recognize and to legitimize the executed Partnership Agreement and only then he could add Plaintiff and Gelaman to the LLC.

On March 20, 2015, Plaintiff and Defendant entered into a lease agreement with Ethan Conrad Properties for a location. Plaintiff secured the electricity account under his name with Defendant opening the bank accounts. Plaintiff, Gelaman and Defendant agreed that Defendant would handle all banking and provide the brothers with a quarterly accounting. Plaintiff began working at the store

Plaintiff alleges that he consulted with an attorney regarding adding Plaintiff to East Eagle. Plaintiff decided to obtain a new LLC, and on March 24, 2016, the new LLC filing documents were stamped for ZS Investments, LLC. Defendant, however, stated that he would not sign any new LLC documents because Plaintiff was not his partner, and locked Plaintiff out of the business.

Plaintiff alleges that Defendant and Shakhofa are the alter egos of East Eagle.

The SAC asserts causes of action for: (1) breach of oral contract, (2) fraudulent misrepresentation, and (3) fraudulent concealment.

Defendant demurs to each on the ground of failure to state sufficient facts.

Breach of Oral Contract

Defendant demurs on the ground that the allegations for breach of oral contract are directly contradicted by the terms of the Partnership Agreement attached as Exhibit B to the SAC. The Partnership Agreement identifies East Eagle and Gelaman as the partners.

In opposition, Plaintiff contends that the breach of oral contract is based on Defendant presenting a partnership agreement to Plaintiff that was something other than what was contemplated. Plaintiff explains that he “alleges that he and his brother were manipulated and defrauded into signing this partnership agreement via false representations made by Defendant.” (Opposition, 5:11-13.)

The demurrer is SUSTAINED without leave to amend. Plaintiff does not dispute that the Partnership Agreement is between East Eagle and Gelaman. Although Plaintiff may take issue with the Defendant’s conduct in obtaining the signatures on the Partnership Agreement, such conduct is not a breach of any oral contract. In any event, Plaintiff has included a fraud in the inducement cause of action in her propose third amended complaint, and the Court has granted Plaintiff’s motion for leave to file the third amended complaint.

The Court declines to grant leave to amend the breach of oral contract cause of action as Plaintiff has been provided two prior opportunities to amend, but still has not cured the defects noted in the demurrer.

Fraudulent Misrepresentation/Concealment

Defendant contends that Plaintiff’s allegations of misrepresentation and concealment focus only on the representations that he would have a 50% ownership interest in the market, and that Plaintiff cannot sufficiently allege justifiable reliance.

Justifiable reliance is question of fact that cannot be resolved on demurrer. “Except in the rare cases where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff’s reliance is reasonable is a question of fact.” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239.) Thus, the demurrer is OVERRULED. Additionally, the fraudulent concealment cause of action includes concealment of material fact beyond concealment that he would not receive a 50% ownership. Because Defendant did not address the additional concealed facts, the demurrer will not dispose of the entire cause of action.

Given that the Court has overruled/sustained without leave to amend the demurrer, Defendant would ordinarily be required to file an answer to the SAC. However, because the Court has granted Plaintiff’s motion for leave to file a third amended complaint, Plaintiff has been provided with an opportunity to file and serve a third

amended complaint by June 18, 2018. Therefore, Defendant need not file an answer to the SAC at this time. In the event Plaintiff does not file and serve a third amended complaint by June 18, 2018, Defendant shall file and serve an answer to the SAC by June 27, 2018.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.

Item 6 2016-00199650-CU-BC

Ezatullah Ghulam vs. Mohamad Aalemkhiel

Nature of Proceeding: Hearing on Demurrer to the Second Amended Complaint (East Eagle,

Filed By: Coleman, Michael

Defendant East Eagle, LLC’s (“East Eagle”) demurrer to Plaintiff Ezatullah Gulam’s Second Amended Complaint (“SAC”) is ruled upon as follows.

The Court fully incorporates hereto the “Overview” section from Defendant Mohamad Aalemkhiel’s (“Mohamad”) demurrer.

East Eagle demurs to the third cause of action for fraudulent concealment on the grounds that: (1) Plaintiff fails to allege that East Eagle owed him a duty to disclose, (2) Plaintiff fails to allege fraud with requisite particularity, and (3) the theory of recovery is deficient. This is the only cause of action asserted against East Eagle.

Generally, in a concealment action, a duty to disclose arises from a fiduciary or confidential relationship with the parties. (Warner Constr. Corp. v. L.A. (1970) 2 Cal.3d 285, 294.) “In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure of material facts may arise in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead;

(2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff.” (Id.)

Plaintiff contends that he has sufficiently alleged fraudulent concealment pursuant to Warner Construction. The Court disagrees.

Plaintiff alleges that Mohamad concealed certain material facts. He then alleges that Mohamad and Shakhofa “utilized the East Eagle LLC as an instrumentality to perpetuate the fraudulent concealment.” (SAC, ¶ 72.) Plaintiff appears to assert an alter ego theory of liability against East Eagle. Plaintiff, as a matter of law, cannot allege alter ego liability such that East Eagle may be liable for Mohamad and Shakhofa’s fraudulent concealment. “The alter ego doctrine traditionally is applied to

pierce the corporate veil so that a shareholder may be held liable for the debts or conduct of the corporation.” (Postal Instant Press, Inc. v. Kaswa Corp. (2008) 162 Cal. App. 4th 1510, 1518.) In
effect, Plaintiff is not seeking to “pierce the corporate veil” so as to impose individual liability based on a corporation’s wrongful acts. Rather, Plaintiff is attempting “outside

reverse piercing” – when a third party seeks to reach corporate assets to satisfy claims against an individual shareholder. (Id.) The theory based on “outside reverse piercing” has been rejected in California. (Postal Instant Press, Inc. v. Kaswa Corporation (2008) 162 Cal.App.4th 1510, 1512-1513.) The Postal Instant court explained that “the
true issue that outside reverse piercing seeks to address is not the misuse of the corporate form to shield the shareholder from personal liability. Rather, the issue addressed by outside reverse piercing is the shareholder’s transfer of personal assets to the corporation to shield the assets from collection by a creditor of the shareholder. In other words, outside reverse piercing seeks to protect the judgment creditor from the shareholder’s fraudulent transfer of assets to the corporation. ” (Id. at 1523.) The

court held that there were other methods to address a fraudulent transfer rather than utilizing an alter ego theory.

Plaintiff’s boilerplate allegations that each party was an agent, employee, etc. or that each defendant ratified the acts of the co-defendants (SAC, ¶¶ 5, 10) are insufficient.

The demurrer is SUSTAINED without leave to amend. The Court declines to grant leave to amend as Plaintiff has been provided two prior opportunities to amend, but still has not cured the defects noted in the demurrer.

Defendant shall submit a formal order for the Court’s signature pursuant to CRC Rule 3.1312.