Case Number: BC533149    Hearing Date: August 11, 2014    Dept: 58

JUDGE ROLF M. TREU
DEPARTMENT 58
________________________________________
Hearing Date: Monday, August 11, 2014
Calendar No.: 4
Case Name: Attar v. Attar, et al.
Case No.: BC533149
Motion: (1) Demurrer and Motion to Strike
(2) Motion to Quash Service of Summons and Complaint
Moving Party: (1) Defendants Elie Attar, Joanna Attar, and Electric Depot, LLC
(2) Defendant Walid Tohme
Responding Party: (1)-(2) Plaintiff Georges Attar
Notice: OK

Tentative Ruling: (1) Demurrer is sustained as to the FAC to the extent it is asserted against Electric Depot and to the extent Plaintiff does not clearly state in which capacity he is bringing each COA. The demurrer is otherwise sustained as to 2nd COA, the 3rd COA to the extent asserted against Joanna, and the 7th COA with 20 days leave to amend; and is otherwise overruled. Motion to strike is denied as moot.

(2) Motion to quash service of summons and complaint is continued to permit Plaintiff to conduct jurisdictional discovery. The motion is otherwise denied to the extent Tohme challenges sufficiency of service of process.

I. Background
On 1/15/14, Plaintiff Georges Attar, individually and as shareholder of Courtesy Electric Wholesale Corporation (“CEW”), filed this action against Defendants Elie Attar, Joanna Attar, Walid Tohme, and CEW arising out of the alleged conversion of CEW’s assets. On 4/8/14, in response but prior to the hearing on a demurrer filed by Elie and Joanna, Plaintiff filed a First Amended Complaint. On 4/11/14, Plaintiff named Electric Depot, LLC as Doe 1.

II. Factual Allegations of the FAC
Plaintiff holds 50% of the shares of CEW, is a director on CEW’s board of directors, and is CEW’s CFO. ¶ 1. Elie, Plaintiff’s brother, holds the other 50% of CEW’s shares, is also a director, and is CEW’s CEO. ¶ 2. Joanna is Elie’s spouse. ¶ 3. CEW operates retail businesses in Alhambra and Pasadena selling electrical products. ¶ 11.

Plaintiff and Elie agreed that the two retail locations would handle their own cash receipts (with Plaintiff handling Alhambra and Elie handling Pasadena) until they could regularly and timely meet to allocate the receipts. ¶ 13. Plaintiff and Elie agreed that all funds collected by business operations would be accounted and that they would share equally any profits of CEW. ¶¶ 14-15. However, Elie has failed to provide an accounting and has made unauthorized cash withdrawals from and/or transfers from CEW bank accounts, unauthorized CEW credits or payments to various bank and credit card accounts, false CEW purchase tickets, and unauthorized transfers of CEW assets. ¶¶ 16-18. Tohme and Joanna conspired with Elie to carry out these unauthorized transfers. ¶¶ 19-22. These unauthorized transfers were used to benefit a different business engaged in the online sale of electrical products operated by Joanna (¶ 21) and real properties owned by Elie and Joanna (¶¶ 23-25).

Elie has denied engaging in this conduct and has refused demands for accounting, a forensic audit, or the production of CEW’s bank statements. ¶¶ 29-33. On 6/19/13, Plaintiff informed CEW’s board of directors of these allegations, demanded the removal of Elie, and to initiate legal action. ¶ 39. CEW’s board of directors refuses to prosecute this action (¶ 40) and a draft of the initial complaint in this action was provided to Elie (¶ 41). Plaintiff and Elie are the only two current directors of CEW. ¶ 42.

The FAC causes of action for (1) conversion, (2) fraud, (3) constructive fraud, (4) breach of fiduciary duties, (5) breach of contract, (6) breach of implied covenant of good faith and fair dealing, (7) unjust enrichment, (8) removal of director for cause, (9) appointment of provisional director, and (10) accounting. The 1st, 3rd, and 7th COAs are asserted against Elie, Tohme, and Joanna; the 2nd, 5th, 6th, and 10th COAs are asserted against Elie; and the 8th and 9th are asserted against Elie and CEW. The 4th COA appears to be asserted against Elie only, and Electric Depot is named as a Doe Defendant to all COAs.

III. Demurrer
Elie, Joanna, and Electric Depot (“Moving Defendants”) have filed a demurrer and a motion to strike as to the FAC.

1. Plaintiff’s Capacity
Moving Defendants argue that Plaintiff fails to indicate which COAs are brought in his individual capacity, as a shareholder, or both. See CRC 2.112. The Court agrees. In opposition, Plaintiff argues that there is only one plaintiff (Opp’n [Dem.] p. 2:2); but this fails to acknowledge the different capacities in which Plaintiff is bringing this action. See, e.g., Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, 1253-54. Plaintiff asserts that the FAC clearly specifies in which capacity Plaintiff was harmed (Opp’n [Dem.] p. 2 n.1); however, this is not entirely clear. The demurrer is sustained on this ground.

2. Electric Depot
Electric Depot argues that there are no factual allegations pertaining to its conduct. The Court agrees, as Electric Depot is only conclusorily alleged to have ratified, authorized, or conspired with the named defendants (see, e.g., FAC ¶ 8). The demurrer is sustained as to the FAC to the extent asserted against Electric Depot.

3. Standing to Bring a Derivative Action
Moving Defendants argue that Plaintiff fails to allege facts with particularity to establish his ability to bring a shareholder’s derivative action pursuant to Corp. Code § 800(b). See also Bader v. Anderson (2009) 179 Cal.App.4th 775, 789-90 (addressing futility). The Court disagrees. Plaintiff alleges that he informed CEW’s board of directors in writing and in considerable detail of the facts alleged in the FAC and requested the board to remove Elie and initiate legal action (FAC ¶ 39): this is sufficient to allege Plaintiff’s efforts to secure action from the board and compliance with informing the board in writing of the ultimate facts of the claim (Corp. Code § 800(b)(2)). Additionally, the allegation that a draft of the Complaint was tendered to Elie individually and as a director (FAC ¶ 41) is sufficient to allege delivery to the board of a true copy of the complaint (Corp. Code § 800(b)(2)) where it is alleged that Plaintiff and Elie are the only two current directors (FAC ¶ 42). Lastly, the Court notes that Plaintiff has alleged facts to support the futility exception based on the “stalemate” due to Plaintiff and Elie being the only directors and equal shareholders of CEW. FAC ¶ 42. The demurrer is overruled on this ground.

4. 1st COA, Conversion
Moving Defendants argue that Plaintiff fails to allege facts to support a wrongful act (see, e.g., Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1507) and that money cannot be the subject of a conversion claim unless it is a specific, identifiable sum (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 396). The Court disagrees.

Plaintiff alleges that Elie has made unauthorized cash withdrawals from and/or transfers from CEW bank accounts, unauthorized CEW credits or payments to various bank and credit card accounts, false CEW purchase tickets, and unauthorized transfers of CEW assets to a different business operated by Joanna and real properties owned by Elie and Joanna. FAC ¶¶ 16-18, 21-25. The allegations of unauthorized and false conduct are sufficient to allege misappropriation of specific funds held for the benefit of CEW. The demurrer is overruled on this ground.

5. 2nd COA, Fraud
Elie argues that Plaintiff’s fraud claim is not alleged with particularity. See Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 72-73; Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184 (requiring pleading facts which “show how, when, where, to whom, and by what means the representations were tendered). The Court agrees. Plaintiff’s fraud claim against Elie is based on alleged misrepresentations concerning the operations of CEW. See FAC ¶ 57. However, Plaintiff fails to allege facts with particularity as to how, when, where, and by what means these representations were made. See FAC ¶¶ 11-15. The demurrer is sustained as to the 2nd COA.

6. 3rd COA, Constructive Fraud
Moving Defendants argue that Plaintiff fails to allege facts supporting constructive fraud with particularity as to a duty and wrongful conduct. See, e.g., Knox v. Dean (2012) 205 Cal.App.4th 417, 434. The Court agrees in part. As to Joanna, Plaintiff fails to allege facts support a fiduciary or confidential relationship. See Tyler v. Children’s Home Society (1994) 29 Cal.App.4th 511, 548-49. Plaintiff only alleges a fiduciary and confidential relationship with Elie arising out of their personal and business relationship (see FAC ¶ 70) and wrongful conduct taken by Elie as revealed by the Court’s summary of the allegations of the FAC. Therefore, the demurrer is sustained as to the 3rd COA to the extent asserted against Joanna and is otherwise overruled.

7. 4th COA, Breach of Fiduciary Duty
Preliminarily, the Court notes that it is unclear whether the 4th COA is asserted against Elie only. See FAC p. 18:9. The Court will treat the 4th COA as being asserted against Elie only however, because the only facts supporting a fiduciary duty is based on the personal and business relationship between Plaintiff and Elie (see FAC ¶¶ 77-78).

Elie argues that Plaintiff fails to allege a fiduciary duty, asserting that non-minority shareholders are owed no fiduciary duty. Elie incorrectly applies the law concerning fiduciary duty to this action. “California law clearly recognizes that officers and directors owe a fiduciary duty to stockholders and controlling stockholders owe a fiduciary duty to minority stockholders.” Singhania v. TUttarwar (2006) 136 Cal.App.4th 416, 426. Therefore, Elie owes a fiduciary duty as an officer and director, and as a shareholder because it is alleged Plaintiff and Elie have equal shares resulting in a stalemate due to their dispute (see FAC ¶¶ 1-2, 42). The demurrer is overruled on this ground.

8. 5th COA, Breach of Contract
Elie argues that Plaintiff fails to allege the existence of a contract because its terms are not reasonably certain. See, e.g., Ladas v. Cal. State Automobile Ass’n (1993) 19 Cal.App.4th 761, 770. However, this improperly attempts to dispute the allegations of the FAC which alleges that the parties entered into an oral agreement as to the operation of CEW concerning specific responsibilities. See FAC ¶¶ 86-89. The demurrer is overruled on this ground.

9. 6th COA, Breach of Implied Covenant of Good Faith and Fair Dealing
Elie demurs to the breach of implied covenant of good faith and fair dealing claim on the ground that it is not authorized outside the insurance context. See, e.g., Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023. However, this claim is precluded in noninsurance cases in the absence of a violation of an independent duty arising from principles of tort law. Id. Plaintiff alleges facts supporting a violation of an independent tort duty based on the fiduciary duty claim against Elie. The demurrer is overruled on this ground.

10. 7th COA, Unjust Enrichment
Moving Defendants argue that unjust enrichment is not a cause of action. See, e.g., Levine v. Blue Shield of Cal. (2010) 189 Cal.App.4th 1117, 1138; but see Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1593. Plaintiff asserts that unjust enrichment is a quasi-contractual claim which provides restitution as a remedy: this is incorrect. Unjust enrichment is a “general principle underlying various doctrines and remedies, including quasi-contract.” Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 911. The demurrer is sustained as to the 7th COA.

11. 8th, 9th, and 10th COAs; Removal of Director, Appointment of Provisional Director, and Accounting
Elie’s demurrer to the 8th through 10th COAs raises Plaintiff’s standing to bring this derivative action. The demurrer is sustained for the same reasons as stated above in the discussion concerning Plaintiff’s capacity.

12. Ruling
The demurrer is sustained to the extent the FAC is asserted against Electric Depot and to the extent Plaintiff does not clearly state in which capacity he is bringing each COA. The demurrer is sustained as to 2nd COA, the 3rd COA to the extent asserted against Joanna, and the 7th COA with 20 days leave to amend; and is otherwise overruled. Plaintiff requests leave to amend: leave to amend is granted because this is the first challenge to the pleadings addressed by the Court.

In light of the Court’s ruling on the demurrer, the motion to strike (directed at Plaintiff’s claim for attorney fees, punitive damages, and constructive trust) is denied as moot.

IV. Motion to Quash Service of Summons and Complaint
On 4/14/14, Plaintiff filed a proof of service of summons and complaint on Tohme indicating substituted service at 8132 Laramie Ave., Winnetka, CA 91306 (“Winnetka address”) on 4/10/14. Tohme moves to quash service of summons and complaint, challenging California’s exercise of personal jurisdiction and the sufficiency of service of process.

1. Personal Jurisdiction
“When a nonresident defendant challenges personal jurisdiction the burden shifts to the plaintiff to demonstrate by a preponderance of the evidence that all necessary jurisdictional criteria are met. This burden must be met by competent evidence in affidavits and authenticated documentary evidence.” Ziller Electronics Lab GmbH v. Superior Court (1988) 206 Cal.App.3d 1222, 1232-33 (citations omitted). “Once facts showing minimum contacts with the forum state are established, however, it becomes the defendant’s burden to demonstrate that the exercise of jurisdiction would be unreasonable.” Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 449.

California may exercise personal jurisdiction over a nonresident defendant “‘if the defendant has such minimum contacts with the state that the assertion of jurisdiction does not violate ‘traditional notions of fair play and substantial justice.’’” Snowney v. Harrah’s Entertainment, Inc. (2005) 35 Cal.4th 1054, 106 (citations omitted). “Personal jurisdiction may be either general or specific. A nonresident defendant may be subject to the general jurisdiction of the forum if his or her contacts in the forum state are ‘substantial . . . continuous and systematic.’” Vons Companies, Inc., 14 Cal.4th at 445 (citations omitted). “If the nonresident defendant does not have substantial and systematic contacts in the forum sufficient to establish general jurisdiction, he or she still may be subject to the specific jurisdiction of the forum.” Id. at 446. “‘When determining whether specific jurisdiction exists, courts consider the ‘relationship among the defendant, the forum, and the litigation.’ A court may exercise specific jurisdiction over a nonresident defendant only if: (1) ‘the defendant has purposefully availed himself or herself of forum benefits’; (2) the ‘controversy is related to or ‘arises out of’ [the] defendant’s contacts with the forum’; and (3) ‘the assertion of personal jurisdiction would comport with ‘fair play and substantial justice.’’” Snowney, 35 Cal.4th at 1062 (citations and quotation marks omitted).

a. Tohme’s Evidence
Tohme submits that he is a resident and citizen of the Republic of Lebanon (Tohme Decl. ¶ 4) and does not reside at the Winnetka address (id. ¶ 3). Tohme submits that none of the residents at the Winnetka address (which is occupied by the family of a friend with whom Tohme attended college in the early 1990s (id. ¶ 7)) are authorized to accept service (id. ¶ 8) and that Tohme operates no business in California (id. ¶ 9).

Tohme submits that he has bank accounts with financial institutions in the United States, but lists his residence as in the Republic of Lebanon and a domestic address to receive ATM cards. Id. ¶ 6. Additionally, Tohme submits that he uses the Winnetka address to receive bank statements and used the Winnetka address to receive a temporary driver’s license during a stay in the United States. Id. ¶ 7.

Tohme has also submitted a request for judicial notice. Except for the decision in World-Wide Volkswagen Corp. v. Woodson (1980) 444 U.S. 286, the RJN improperly attempts to assert arguments based on the allegations of the FAC. Therefore, the RJN is denied, except as to the decision in World-Wide Volkswagen Corp.

b. Plaintiff’s Evidence
Plaintiff submits three declarations in opposition to Tohme’s motion, to which Tohme has objected.

Plaintiff submits the declarations of Harry Kazakian and Gregory J. Pedrick to show that Tohme uses the Winnetka address. However, Mr. Kazakian’s declaration relies on what appears to be a third party database (www.loganreg.com) (Kazakian Decl. ¶ 2, Ex. A) without establishing the foundation of the information contained in the database. Tohme’s objection to the declaration of Mr. Kazakian is sustained.

Mr. Pedrick submits that the United States Postal Service has confirmed that Tohme receives mail at the Winnetka address. Pedrick Decl. ¶ 7, Ex. B. Tohme’s Objection No. 1 to Mr. Pedrick’s declaration (relating to the verification of the Winnetka address by Mr. Kazakian (Pedrick Decl. ¶ 4)) is sustained; Objection No. 2 is overruled.

Plaintiff submits that he discovered spreadsheets on Elie’s computer on 3/9/12 (Georges Decl. ¶¶ 3-4, Ex. A) which referred to a check that has been produced from CEW’s subpoenaed bank records (id. ¶¶ 5-6, Ex. B (check from Tohme to “630 S. Grand Avenue LLC”)). Plaintiff also submits that he has discovered a customer profile for Tohme indicating a California address for a bank account. Id. ¶ 7, Ex. C. Tohme’s Objectio No. 8 (to the customer profile) is sustained; remaining objections are overruled.

Plaintiff’s evidence is insufficient to establish that Tohme has engaged in “wide-ranging” contacts that approximate physical presence (Vons Companies, Inc., 14 Cal.4th at 446) or that Tohme has reached out to California with respect to the facts in this case (see HealthMarkets, Inc. v. Superior Court (2009) 171 Cal.App.4th 1160, 1172). Although Plaintiff has named 630 South Grand Ave LLC as Doe 2 on 5/30/14, no evidence has been submitted as to how this check or the spreadsheet submitted is connected to Elie’s alleged unauthorized transfers of CEW’s assets. Therefore, Plaintiff fails to establish by a preponderance of evidence that general or specific jurisdiction exists over Tohme.

c. Jurisdictional Discovery
Plaintiff requests a continuance to conduct discovery on jurisdictional issues, which is in the Court’s discretion. See, e.g., HealthMarkets, Inc., 171 Cal.App.4th at 1173. See also In re Automobile Antitrust Cases I and II (2005) 135 Cal.App.4th 100, 127 (“In order to prevail on a motion for a continuance for jurisdictional discovery, the plaintiff should demonstrate that discovery is likely to lead to the production of evidence of facts establishing jurisdiction.”). Tohme’s declaration and Plaintiff’s evidence present facts that suggest that discovery may lead to evidence of additional California contacts. Therefore, Plaintiff’s request for a continuance to conduct jurisdictional discovery.

2. Service of Process
“In the absence of a voluntary submission to the authority of the court, compliance with the statutes governing service of process is essential to establish that court’s personal jurisdiction over a defendant. When a defendant challenges that jurisdiction by bringing a motion to quash, the burden is on the plaintiff to prove the existence of jurisdiction by proving, inter alia, the facts requisite to an effective service.” Dill v. Berquist Construction Co. (1994) 24 Cal.App.4th 1426, 1439-40. “It has been held that the filing of a proof of service creates a rebuttable presumption that the service was proper. However, that presumption arises only if the proof of service complies with the statutory requirements regarding such proofs.” Id. at 1441-42 (citations omitted).

Tohme submits that the Winnetka address is not his residence or usual business or mailing address. Tohme Decl. ¶¶ 3-4, 9-10. The Court concludes that Tohme has failed to rebut the presumption of proper service. See CCP § 415.20. Plaintiff has submitted evidence that Tohme has maintained the Winnetka address for receiving mail. Pedrick Decl. ¶ 7, Ex. B. Indeed, Tohme admits to using the Winnetka address to receive mail from financial institutions in the United States. Tohme Decl. ¶ 7. Under these circumstances, the Court finds that the Winnetka address is a usual mailing address for Tohme, at least in connection with California and/or the United States. Therefore, the motion to quash service of summons and complaint based on insufficiency of service of process is denied.