Case Name: Virk, et al. v. Anand, et al.
Case No.: 18CV335447

According to the allegations of the first amended complaint (“FAC”), plaintiffs Amar Virk (“Amar”) and Taproop Virk (“Taproop”) (collectively, “Plaintiffs”) are married. (See FAC, ¶ 1.) While defendant Taresh Anand (“Taresh”) and Amar worked for EBAS, Taresh asked Amar to work for a new company that Taresh would start, as an equal partner. (See FAC, ¶ 10.) While they were still working for EBAS, under which they signed non-solicitation and non-competition agreements, Taresh and Amar agreed to form the company but have all shares issued in their wives’ names, Swapnil Anand (“Swapnil”) and Taproop Virk (“Taproop”), respectively. (See FAC, ¶ 11.) Taproop paid $35,000 and Amar began working for Company for a 49% interest in Company. (See FAC, ¶ 12.)

In March 2009, Amar realized that they did not have any paperwork demonstrating the interest in Company, so, the parties hired an attorney and share certificates were issued to Taproop. (See FAC, ¶ 13.) After Amar began working at Company, he realized that he was not being paid his share of the profits. (See FAC, ¶ 15.) After requesting Taresh to view Company’s financial records, Taresh refused access to those records. (See FAC, ¶¶ 14, 16.) In late 2017 and mid-2018, Amar was able to view a tax document from Company in connection with a potential deal, and Amar discovered that Company had been generating millions of dollars of profits, Swapnil had withdrawn over a million dollars in one year, and another employee, defendant Sandeep Bhandal (“Bhandal”) was now listed as a 51% shareholder of Company and Swapnil was a 49% shareholder of Company. (See FAC, ¶ 17.) Plaintiffs believe that Bhandal, Swapnil and Taresh have conspired to deprive Plaintiffs of their shareholder interest in Company, and steal profits of Company to start other companies so as to deprive Company of its own funds and hide investments and Company profits from Plaintiffs. (See FAC, ¶¶ 18-19.)

In August 2018, Taresh informed Amar that he was selling Company to a third party, but Taresh still refuses to inform Plaintiff of any details of the alleged sale, have not had any meeting whatsoever to discuss any details of a proposed sale, and refuses repeated demands to inspect Company financial statements, books, records and tax returns. (See FAC, ¶ 20.) On February 27, 2019, Plaintiffs filed the FAC against defendants Taresh, Swapnil and Bhandal (collectively, “Defendants”) and nominal defendant Company, asserting causes of action for:

1) Breach of fiduciary duty (by Taproop, against all defendants);
2) Accounting (by Taproop, against all defendants);
3) Injunctive relief (by Taproop, against all defendants);
4) Conversion (by Taproop, against all defendants);
5) Involuntary dissolution of a corporation (by Taproop, against all defendants);
6) Violation of Corporation Code §§ 1600, 1601 (by Taproop, against all defendants);
7) Removal of directors for fraudulent/dishonest acts (by Taproop, against all defendants);
8) Unjust enrichment (by Taproop, against all defendants);
9) Fraud (by Taproop, against all defendants);
10) Constructive fraud (by Taproop, against all defendants);
11) Unfair business practices (by Taproop, against all defendants);
12) Declaratory relief—rescission of stock grant (by Taproop, against all defendants);
13) Conspiracy to commit fraud and conversion (by Taproop, against all defendants);
14) Constructive trust (by Taproop, against all defendants);
15) Appointment of receiver (by Taproop, against all defendants);
16) Fraud (by Amar against Taresh);
17) Constructive fraud (by Amar against Taresh);
18) Constructive trust (by Amar against Taresh);
19) Unjust enrichment (by Amar against Taresh); and,
20) Breach of contract (by Amar against Taresh).

Defendants demur to the FAC.

Defendants’ request for judicial notice

Defendants request judicial notice of the FAC. This is a proper subject of judicial notice. (See Evid. Code § 452, subd. (d).) Defendants’ request for judicial notice is GRANTED.

Demurrer to the FAC

Defendants demur to the FAC, asserting that it fails to allege demand futility. However, the demurrer ignores the allegations of paragraph 23 (alleging that “Plaintiff did not make any effort to secure action from the board of directors in place at the time of filing… both the initial complaint or the amended complaint in prosecuting this action since any such effort would have been futile in that Defendant Taresh Anand is the main wrongdoer as alleged above and below and controls all aspects of [the] company”) and paragraphs 11-21. The allegations in these paragraphs demonstrate that the directors were neither disinterested nor independent, and that, if the allegations are taken as true, the challenged transactions were not otherwise the product of a valid exercise of business judgment. (See Bader v. Anderson (2009) 179 Cal.App.4th 775, 791 (stating that “a court, in deciding whether a plaintiff will be excused from making a demand on the board, must evaluate ‘whether, under the particularized facts alleged, a reasonable doubt is created that: (1) the directors are disinterested and independent and (2) the challenged transaction was otherwise the product of a valid exercise of business judgment’”).) The demurrer to the FAC on the ground that it fails to allege demand futility is OVERRULED.

Defendants demur to the first cause of action for breach of fiduciary duty on the ground that it fails to state facts as to any of the defendants. The FAC alleges that Taresh refused to provide and actively prevented Plaintiffs from accessing financial records of Company. The FAC also alleges that Swapnil, Bhandal and Taresh conspired to defraud Taproop of her shares in Company by secretly transferring them to Bhandal or Swapnil so as to deprive Taproop of the entirety of her interest in Company. Defendants argue that Swapnil and Bhandal are not alleged officers or directors, but they are alleged to be shareholders. The demurrer to the first cause of action on the ground that it fails to allege sufficient facts to support a cause of action is OVERRULED.

Defendants demur to the second cause of action for accounting, asserting that Amar’s “accounting claim… fails as a matter of law.” However, the cause of action is by Taproop. Defendants also assert that Taproop does not allege facts showing that she is due any money from Taresh, Swapnil or Sundeep, and does not allege facts showing a balance is due. However, the FAC alleges that these individual defendants conspired to deprive Taproop of distributions in order to personally benefit these individual defendants, to deprive Company of profits and corporate funds. (See FAC, ¶¶ 15-21.) Defendants also argue that “it is undisputed that Taproop has not taken any action to avail herself of the remedies provided at Sections 1600 and 1601 to inspect, among other things, the Company’s ‘accounting books and records.’” (Def.’s memorandum of points and authorities in support of demurrer, p.14:5-7.) However, the FAC specifically alleges that “Defendants… fail[ed] to provide the Plaintiff as a shareholder and director, the right of inspection pursuant to Corporation Code Sections 1600 through 1605 and failing to provide any annual financial statements as required by law… Defendants have excluded Plaintiff from obtaining information in regards to the Company.” (FAC, ¶ 27.) “[O]n demurrer the court is required to accept the allegations of the complaint as true.” (Credit Managers Assn. v. Super. Ct. (Security Pacific Nat. Bank) (1975) 51 Cal.App.3d 352, 359.) The demurrer to the second cause of action is OVERRULED.

Defendants demur to the third cause of action for injunctive relief on the ground that it is a remedy, not a cause of action, citing Faunce v. Cate (2013) 222 Cal.App.4th 166, which stated, “injunctive and declaratory relief are equitable remedies, not causes of action… the trial court properly sustained the demurrer as to these claims because they were ‘wholly derivative of’ other nonviable causes of action.” (Id. at p.173.) However, the other causes of action state facts sufficient to constitute causes of action. Accordingly, the demurrer to the third cause of action is OVERRULED.

Defendants demur to the fourth cause of action, asserting that actions for conversion are subject to a three-year statute of limitations, and that the causes of action seek to recover monies starting in February 6, 2008, but “Plaintiffs, however, did not file their Complaint until September 27, 2018, and any conversion claim is limited to property purportedly converted on or after September 27, 2015.” (Defs.’ memo, p.15:15-22.) This argument lacks merit because “a demurrer cannot rightfully be sustained to part of a cause of action or to a particular type of damage or remedy.” (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047.) Defendants also argue that “the claim seeks to recover allegedly converted ‘profits earned by the Company,’ for which the Company, not Plaintiffs, may recover… Plaintiffs thus lack standing.” (Defs.’ memo, p.15:11-14.) This argument lacks merit because it is a derivative claim. Defendants also assert that “the Complaint fails to allege facts showing that any Defendant took any action, or inaction, between September 27, 2015 to the present, that amounts to ‘a substantial interference with the possession or the right,’ to possess any identifiable property purportedly belonging to either Plaintiff.” (Defs.’ memo, p.15:23-27.) However, the FAC clearly alleges that Defendants conspired to deprive Plaintiffs of their dividends from the Company’s profits. That said, “[m]oney cannot be the subject of a cause of action for conversion unless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment.” (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 284.) The subject dividend has not been specified. Accordingly, the demurrer to the fourth cause of action is SUSTAINED with 10 days leave to amend.

Defendants demur to the fifth cause of action for involuntary dissolution, asserting that the FAC alleges that Swapnil owns 49% of the shares and Bhandal owns the remaining 51%. However, Defendants misread the FAC. The FAC alleges that Defendants have fraudulently attempted to take Taproop’s interest in the Company without compensation. Such an action would be void. Accordingly, Defendants’ argument lacks merit and the demurrer to fifth cause of action is OVERRULED.

Defendants demur to the sixth cause of action for violation of Corporation Code sections 1600 and 1601, on the ground that Amar is neither a shareholder nor a director of Company, and Taproop is also not a director, “[a]nd, even assuming for the sake of this demurrer that she is a shareholder, this cause of action still fails because Taproop has not and cannot allege that she made a ‘written demand’ for inspection of the Company’s books and records.” (Defs.’ memo, p.17:13-21.) Again, this argument lacks merit as the FAC specifically alleges that “Defendants… fail[ed] to provide the Plaintiff as a shareholder and director, the right of inspection pursuant to Corporation Code Sections 1600 through 1605 and failing to provide any annual financial statements as required by law… Defendants have excluded Plaintiff from obtaining information in regards to the Company.” (FAC, ¶ 27.) “[O]n demurrer the court is required to accept the allegations of the complaint as true.” (Credit Managers Assn. v. Super. Ct. (Security Pacific Nat. Bank) (1975) 51 Cal.App.3d 352, 359.) The demurrer to the sixth cause of action is OVERRULED.

Defendants demur to the seventh and fifteenth causes of action for removal of directors for fraudulent, dishonest acts, asserting that “any alleged injury to the Company caused by alleged ‘dishonest acts’ of its directors is an injury to the Company.” (See Hagan v. Fairfield (1961) 194 Cal.App.2d 240, 250.) Again, this argument neglects the fact that the claim is a derivative one. Defendants also argue that “Plaintiffs fail to identify any ‘director’ they seek to remove from the Company’s board.” (Defs.’ memo, p.18:5-9.) Here, the FAC seeks removal of all directors. (See FAC, ¶ 61 (alleging that Plaintiffs is informed and believes that there are no directors other than the Defendant Taresh Anand… [h]owever, to the extent that any of the Defendants are directors or any DOE defendant appointed by them, the Plaintiff demands they be excluded from the board”).) This is sufficient. The demurrer to the seventh and fifteenth causes of action is OVERRULED.

Defendants demur to the eighth and nineteenth causes of action for unjust enrichment, asserting that the unjust enrichment claims fail for each of the reasons that the conversion claim fails. However, the lone argument with merit as to the demurrer to the fourth cause of action was that Plaintiffs failed to identify a specific identifiable sum of money. A specific identifiable sum of money is not an element for a cause of action for unjust enrichment. The demurrer to the eighth and nineteenth causes of action is OVERRULED.

Defendants demur to the ninth, tenth and seventeenth causes of action for fraud on the ground that they are not pled with particularity. Indeed, “fraud actions are subject to strict requirements of particularity in pleading.” (Furia v. Helm (2003) 111 Cal.App.4th 945, 956; see also Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1268 (stating same); see also Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184 (stating that “[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice”).) The specificity requirement has two purposes: to apprise the defendant of certain definite accusations against him so that he can intelligently respond to them, and also to weed out nonmeritorious actions on the basis of the pleadings. (See Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 838.) Minimally, a fraud cause of action must “allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Lazar v. Super. Ct. (Rykoff-Sexton, Inc.) (1996) 12 Cal. 4th 631, 645; see also Tenet Healthsystem Desert, supra, 245 Cal.App.4th at p.838 (stating same).) Here, neither the ninth, nor the tenth nor the seventeenth cause of action even identifies the misrepresentation. The demurrer to the ninth and tenth causes of action is SUSTAINED with 10 days leave to amend after service of this signed Order.

Defendants demur to the eleventh cause of action for unfair business practices, asserting that as the FAC fails to allege any other cause of action, the dependent eleventh cause of action fails to state facts sufficient to constitute a cause of action. In light of the above rulings, the demurrer to the eleventh cause of action is OVERRULED.

Defendants demur to the twelfth cause of action for declaratory relief—rescission of stock grant, arguing that Plaintiffs cannot maintain a cause of action for rescission because any damage flowing from the sale of shares to Bhandal can only be claimed by Company, Plaintiff did not sell the shares and there is no allegation of wrongfulness regarding the sale of the shares. Defendants completely misconstrue the allegations of the FAC. The FAC’s allegations do not involve a sale whatsoever; rather, the FAC alleges that Defendants essentially took Taproop’s shares and gave them to Bhandal without providing any compensation to Taproop, despite the fact that she paid for them. The demurrer to the twelfth cause of action is OVERRULED.

The thirteenth cause of action for conspiracy to commit fraud and conversion is dependent on the fraud and conversion causes of action. In light of the above rulings, the demurrer to the thirteenth cause of action is SUSTAINED with 10 days leave to amend after service of this signed Order.

Defendants demur to the fourteenth and eighteenth causes of action for constructive trust asserting that the causes of action: fail to identify the property with specificity; fail to allege any wrongful act by Defendants; and, the injury to any such property is that of the Company. However, the FAC alleges that Defendants conspired to deprive Taproop of her shareholder interest in Company by secretly transferring her interest to Bhandal or Swapnil, and thereby also depriving Taproop of enjoying in the subsequent investments of those profits. The Court disagrees that these causes of action involve injury to the Company; this is a direct claim. The demurrer to the fourteenth and eighteenth causes of action is OVERRULED.

Defendants demur to the sixteenth cause of action for fraud on the ground that they are not pled with sufficient particularity. This cause of action identifies the misrepresentation, but does not allege when Taresh made the alleged misrepresentation with regards to equal compensation. The demurrer to the sixteenth cause of action is SUSTAINED with 10 days leave to amend after service of this signed Order.

Defendants demur to the twentieth cause of action for breach of contract on the ground that the contract is barred by the Statute of Frauds because the agreement was not able to be performed within one year. (See Defs.’ memo, citing Civ. Code § 1624, subd. (a)(1).) However, as Plaintiffs assert, the terms of the agreement does not demonstrate that they could not be performed in one year. Defendants also assert that the claim is time-barred because the oral agreement was entered into in 2008; however, the statute of limitations runs from the accrual of the cause of action, not from the date of the agreement. Defendants also argue that the twentieth cause of action lacks sufficient facts to demonstrate a breach, and definiteness of terms. A complaint for breach of contract must include: (1) the existence of a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) damages to plaintiff therefrom. (Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913.) The twentieth cause of action so alleges these elements. The demurrer to the twentieth cause of action is OVERRULED.

Motion to strike the FAC

Defendants move to strike the entire FAC on the ground that the entire FAC is not a derivative shareholder lawsuit as claimed and thus fails to plead sufficient facts to qualify as such. Defendants assert that Plaintiffs failed to allege specific facts as to each director showing why the demand would be futile. The FAC, however, alleges that the lone director is Taresh. Defendants also argue that Taproop has improperly brought this derivative claims as the FAC also brings direct claims and “a shareholder bringing a Derivative Action may not join an individual cause of action unless the shareholder’s injury arises out of the same transaction or occurrence and has its origin in circumstances independent of the plaintiff’s status as a shareholder.” (Defs.’ memorandum of points and authorities in support of motion to strike, p.7:9-11.) Here, the FAC alleges that Defendants misappropriated corporate funds and secretly deprived Taproop of her interest and transferred it to themselves. The FAC alleges that the shareholder’s injury has its origin in circumstances independent of the plaintiff’s status as a shareholder, and that her injury arises out of the same occurrences. The motion to strike is DENIED.

The Court will prepare the Order.