2012-00135417-CU-BC

Cody Barden Daniels & Palo, Inc. vs. Douglas R. Timmons

Nature of Proceeding: Hearing on Demurrer

Filed By: Healy, Brian S.

Demurrer of Plaintiff Cody, Barden, Daniels and Palo as Assignee of Cross- Defendant
Umpqua Bank to the First Amended Cross-Complaint (FACC) is SUSTAINED, without
leave to amend.

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The FACC sets forth six causes of action: the 1 for breach of contract, the 2 for
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breach of the duty of good faith and fair dealing, the 3 for negligent misrepresentation
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and fraud, the 4 for intentional conduct, the 5 for indemnity and the 6 for punitive
and exemplary damages.

The demurrer to the entire FACC on the grounds of lack of standing is SUSTAINED,
without leave to amend.

The basis for this action is the loan made to Park Forest LLC, by Umpqua, which was
guaranteed by the cross-complainants in the amount of three million dollars made for
the purpose of purchasing real property, on which Park Forest, LLC was planning to
subdivide and build single family homes. Park Forest, LLC defaulted on the loan and
presently, there is due and owing on the loan, the principal sum of one $1,150,301.58.

Park Forest, LLC is not a party to this action, as it is in bankruptcy. Umpqua assigned
this loan to plaintiff Cody, Barden, Daniels & Palo, Inc. and plaintiff has sued the
guarantors for repayment of the loan balance.

The FACC is filed by the guarantors of Park Forest, LLC against the assignee of
Umpqua bank, plaintiff/cross-defendant Cody, Barden, Daniels & Palo, Inc..

The proper cross-complainant would be Park Forest LLC, not to its
members/guarantors. “In determining whether an individual action as opposed to a
derivative action lies, courts look at the gravamen of the wrong alleged in the
pleadings. Nelson v. Anderson (1999) 72 Cal.App.4th 111, 124.

The FACC is clearly derivative of a claim that the borrower, Park Forest, LLC, had
against Umpqua. Cross-Complainants cannot plead a direct harm that is not derivative of their lost investment in Park Forest. (FACC, para. 8).

Cross-complainants attempt to create standing by alleging that they are the “alter ego”
of Park Forest, LLC. (See FACC, para. 10.) They assert that Park Forest, LLC was
inadequately capitalized, that the limited partnership never held shareholder meetings
and that there was a unity of interest between the members and the veiled attempt to
circumvent their lack of standing issue.

The cross-complainants are attempting to benefit by their own wrongdoing, in
contradiction to Civil Code, sec. 3517: “No one can take advantage of his own wrong”.
The Court does not condone the cross-complainants’ wrongdoing. The Court therefore
sustains this demurrer as to all causes of action on the grounds of lack of standing.

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Demurrer to the 1 cause of action is SUSTAINED, without leave to amend. The
statute of limitations set forth in C.C.P., sec. 339, provides for a two year statute for
oral contracts. As it appears from the FACC that the contract was entered into on
March 2006, when Park Forest, LLC borrowed funds from Umpqua, it must have been
breached when the contract matured and was not renewed on March 5, 2010.

As the plaintiff’s complaint was filed on Nov. 8, 2012 and the initial cross complaint
was not filed until Feb 2013, more than two years had elapsed from the date of the
breach.

Demurrer to the 2nd for breach of the duty of good faith and fair dealing is SUSTAINED
without leave, as it is barred by the same statute or limitations.

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Demurrer to the 3 for negligent misrepresentation and fraud is SUSTAINED, with
leave to amend.

In California, fraud must be pled specifically; general and conclusory allegations do not
suffice. Thus the policy of liberal construction of the pleadings will not ordinarily be
invoked to sustain a pleading defective in any material respect. This particularity
requirement necessitates pleading facts which ‘show how, when, where, to whom, and
by what means the representations were tendered. Lazar v. Superior Court (1996)
12 Cal. 4th 631, 645.

Here, the required elements have not been pled with particularity.

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Demurrer to the 4 for intentional conduct is SUSTAINED. There is no such cause of
action.

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Demurrer to the 5 for indemnity is not separately demurred to.

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Demurrer to the 6 for punitive and exemplary damages is SUSTAINED, with leave to
amend to plead as an element of damages… There is no such cause of action.

As the demurrer to the entire complaint has been sustained without leave to amend for
lack of standing, no responsive pleading is required.

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