Case Name: Ampe Group, LLC v. Paul L. Chun
Case No.: 16CV300965

I. Background

This action arises from a dispute among the owners of a bar. In 2012, Paul L. Chun (“Chun”) and business partners Andre G. Chenoweth (“Chenoweth”), Eric K. Nielsen (“Nielsen”), and Michael Nguyen (“Nguyen”) formed plaintiff Ampe Group, LLC (“Plaintiff”) for the purpose of operating a bar in San Jose known as 55 South. (FAC, ¶¶ 8–10.)

Chun and Nielsen managed day-to-day operations at the bar, and Chun had a company debit card and credit card for that purpose. (FAC, ¶ 15.) In February 2014, Plaintiff’s accountants discovered banking transactions that appeared to involve Chun’s personal expenses rather than business expenses. (FAC, ¶ 15.) Chun admitted he had not maintained his own bank account and used the company debit card for personal expenses. (FAC, ¶ 15.) Chun’s partners subsequently discovered additional unauthorized purchases, including the withdrawal of $50,000 for a stake in another nightclub known as 7 Bamboo and a check for $18,500 drafted to purchase a car. (FAC, ¶¶ 16–18.) And so, Chenoweth, Nielsen, and Nguyen voted to remove Chun as managing member. (FAC, ¶ 19.)

Despite this decision, Chun continued to try to handle and access company funds and accounts. (FAC, ¶¶ 20–21.) He demanded advances on distributions and caused Plaintiff’s accounts to be frozen when he asked the bank to reinstate him as a signatory. (FAC, ¶¶ 20–21.) Chun also began going to the bar after closing and taking the day’s profits after staff reconciled their registers. (FAC, ¶¶ 25–34.)

Chun’s partners confronted him and negotiated a détente; Chun agreed to stay away from the bar, refrain from interfering with operations, and return the money he stole. (FAC, ¶¶ 34–35.) He failed to adhere to this agreement during its 90-day term and continues to frequent the bar and engage in conduct that is harmful to the business and its financial health. (FAC, ¶¶ 35–37.) Accordingly, Plaintiff commenced this action in which it asserts causes of action against Chun for: (1) breach of contract; (2) breach of fiduciary duty; (3) breach of the implied covenant of good faith and fair dealing; (4) fraud; (5) conversion; (6) unjust enrichment; (7) trespass; (8) dissociation; and (9) damages under Penal Code section 496.

Currently before the Court is Chun’s motion for summary adjudication. The Court notes it did not receive a reply brief in this case.

II. Legal Standard

A defendant may move for summary adjudication of a cause of action on the ground it has no merit. (Code Civ. Proc., § 437c, subd. (f)(1).) The motion “shall proceed in all procedural respects as a motion for summary judgment.” (Code Civ. Proc., § 437c, subd. (f)(2).)

A defendant bears the initial burden of proving “a cause of action has no merit [by] show[ing] that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to the cause of action.” (Code Civ. Proc., § 437c, subd. (p)(2).) To carry this burden, the defendant must present supporting evidence, such as “affidavits, declarations, admissions, answers to interrogatories, depositions, and matters of which judicial notice shall or may be taken.” (Code Civ. Proc., § 437c, subd. (b)(1).)

“Once the defendant [ ] has met that burden, the burden shifts to the plaintiff [ ] to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subd. (p)(2).) “The plaintiff [ ] shall not rely upon the allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to the cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subd. (p)(2).)
Ultimately “[a] motion for summary adjudication shall be granted only if it completely disposes of a cause of action [ ].” (Code Civ. Proc., § 437c, subd. (f)(1).)

III. Nature and Scope of Motion

The motion noticed by Chun is a motion for summary adjudication of the third and seventh causes of action. (Not. at p. 2:5–13.) Yet, in his memorandum of points and authorities, he purports to seek summary adjudication of additional damages issues or “allegation[s]” as well as the claim for an accounting in his cross-complaint. (Mem. of Pts. & Auth. at p. 1:4–12.) There are a number of problems with Chun’s approach.

First, Chun fails to set forth the additional issues as well as the claim for an accounting in his notice of motion as required by rule 3.1350(b) of the California Rules of Court. And so, he has not properly noticed a motion for summary adjudication of issues or claims other than the third and seventh causes of action.

Second, issues and allegations are not proper subjects of a motion for summary adjudication. (Code Civ. Proc., § 437c, subd. (f)(1); Sequoia Insurance Co. v. Super. Ct. (1993) 13 Cal.App.4th 1472, 1478.) The only issue that is ordinarily subject to summary adjudication is an “issue of duty.” (Code Civ. Proc., § 437c, subd. (f)(1).) And there is no way to reframe these allegations as proper subjects of a motion for summary adjudication. Code of Civil Procedure section 437c, subdivision (f)(1) authorizes summary adjudication of a claim for punitive damages, not merely damages allegations. (Catalano v. Super. Ct. (2000) 82 Cal.App.4th 91, 97–98.) Also, adjudication of the targeted allegations would not negate the damages element of Plaintiff’s claims and, in turn, dispose of the entirety of any cause of action. (See, e.g., DeCastro West Chodorow & Burns, Inc. v. Super. Ct. (1996) 47 Cal.App.4th 410, 422 [“Code of Civil Procedure section 437c, subdivision (f)(1), does not permit summary adjudication of a single item of compensatory damage which does not dispose of an entire cause of action.”].) Accordingly, the additional allegations—irrespective of how they are denominated—cannot be summarily adjudicated.

Finally, as for the accounting claim, Chun’s motion is directed to that claim as pleaded in his original cross-complaint, which has been superseded. Although Chun anticipated amending that pleading—his motion for leave to amend was pending when he filed the motion for summary adjudication—the amendment had yet to be authorized and deemed served and filed. After Chun filed his motion for summary adjudication, the Court granted his motion for leave to amend and the original cross-complaint was superseded. Ordinarily, a court cannot grant a motion for summary adjudication directed to a pleading that has since been superseded. (State Compensation Insurance Fund v. Super. Ct. (2010) 184 Cal.App.4th 1124, 1131.) Additionally while the opposition addresses the amended cross-complaint, Chun himself specifically references allegations in his claim as originally pleaded, rather than the allegations (including new allegations) in his amended pleading. And so, the Court will not disregard this procedural irregularity and will not treat the motion as being directed to the claim in the first-amended cross-complaint.

For all of these reasons, the Court treats the motion as a motion for summary adjudication of the third and seventh causes of action only.

IV. Evidentiary Matters

A. Sealing

Both Chun and Plaintiff served notice of and conditionally lodged nearly all of their briefing and supporting evidence under seal pursuant to rule 2.551(b)(3) of the California Rules of Court. Chun lodged the following: (1) memorandum of points and authorities in its entirety; (2) separate statement in its entirety; (3) paragraphs 2–20 of his supporting declaration; and (4) all exhibits attached to his supporting declaration. Plaintiff lodged: (1) opposition brief in its entirety; (2) separate statement in its entirety; (3) portions of written objections to evidence; (4) paragraphs 3–17 of the Nadboralski declaration; (5) paragraphs 2–38 of the Nielsen declaration and the exhibit thereto; and (6) a phrase (identifying page numbers) in the Van Niekerk declaration as well as exhibits attached thereto.

“If the party that produced the documents and was served with the notice [ ] fails to file a motion or an application to seal the records within 10 days or to obtain a court order extending the time to file such a motion or an application, the clerk must promptly transfer all the documents [lodged] from the envelope, container, or secure electronic file to the public file.” (Cal. Rules of Court, rule 2.551(b)(3)(B).) “If the party files a motion or an application to seal within 10 days or such later time as the court has ordered, these documents are to remain conditionally under seal until the court rules on the motion or application and thereafter are to be filed as ordered by the court.” (Ibid.)

Chun served notice on March 19, 2019, and Plaintiff served notice on May 21, 2019. To date, no party has filed a motion to seal or requested additional time do so. Accordingly, the Court could direct the clerk—right now—to publicly file the unredacted documents currently lodged under seal. Out of an abundance of caution, the Court will defer directing the clerk to do so until after the hearing on the motion for summary adjudication. The Court will give each side 10 court days from this order to take action (or decide not to take action) for those documents.

More generally, the Court is not pleased with both sides’ treatment of sealed documents. As in Overstock.com, Inc. v. Goldman Sachs Group, Inc. (2014) 231 Cal.App.4th 471, the Court is presented with “parties that fail to exercise any discipline as to the confidential documents with which they inundate the courts, and parties that indiscriminately insist every document satisfies the rigorous requirements [for sealing].” They “submitted a veritable mountain of confidential material” without adequate justification, and the Court “need not, and [will] not, put up with this kind of abuse.” (Overstock.com, supra, 231 Cal.App.4th at pp. 499–500 [“[T]he trial courts can, and should, view overly inclusive sealing efforts with a jaundiced eye, and impose sanctions as appropriate.”].)

Rules 2.550 and 2.551 of the California Rules of Court govern “records to be sealed or proposed to be sealed by court order.” (Cal. Rules of Court, rule 2.550(a)(1).) Subject to exceptions not implicated here, these rules are mandatory. (Savaglio v. Wal-Mart Stores, Inc. (2007) 149 Cal.App.4th 588, 600.) “[C]ounsel is duty bound to know and apply these rules of civil procedure.” (Ibid.) Indeed, these rules are specifically discussed in the parties’ protective order. (Prot. Order, ¶¶ 12–14.)

“Records may not be filed under seal without a court order and the prerequisite motion and findings. (Rules 2.551(a), (b), 2.550(d), (e).)” (Savaglio, supra, 149 Cal.App.4th at p. 600.) “The trial court cannot rely solely on an agreement or stipulation of the parties as the basis for permitting records to be filed under seal. (Rule 2.551(a).)” (Ibid.) The requisite findings are as follows: “(1) There exists an overriding interest that overcomes the right of public access to the record; (2) The overriding interest supports sealing the record; (3) A substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; (4) The proposed sealing is narrowly tailored; and (5) No less restrictive means exist to achieve the overriding interest.” (Cal. Rules of Court, rule 2.550(d).)

The Court orders the parties to review all documents filed under seal and file redacted versions (on a line-by-line basis if necessary) within 10 days of this order, in accordance with the discussion above.

B. Objections to Evidence

Plaintiff filed written objections to portions of Chun’s evidence. “[T]he court need rule only on those objections to evidence that it deems material to its disposition of the motion.” (Code Civ. Proc., § 437c, subd. (q).) “Objections to evidence that are not ruled on for purposes of the motion shall be preserved for appellate review.” (Code Civ. Proc., § 437c, subd. (q).) As reflected below, Chun fails to carry his initial burden. Also, his primary argument with respect to the claims at issue is that there is a pleading defect. Accordingly, the challenged evidence is not material to the disposition of the motion. It follows that the Court need not rule on Plaintiff’s objections to that evidence.

In reaching this conclusion, the Court observes that a number of Plaintiff’s objections are not actually challenges to the admissibility of evidence, but rather assertions about its sufficiency and legal significance. For example, Plaintiff makes objections based on the proposition that a declaration in support of a motion for summary adjudication must contain “evidentiary facts, not legal conclusions or ‘ultimate’ facts.” (Hayman v. Block (1986) 176 Cal.App.3d 629, 638–39; accord Hope Internat. University v. Super. Ct. (2004) 119 Cal.App.4th 719, 739, fn. 9.) Although this legal principle is operative, it is not a rule of admissibility. (See Burch v. Regents of the University of California (E.D.Cal. 2006) 433 F.Supp.2d 1110, 1119.) And so while “statements in declarations [that] are not facts [ ] will not be considered on a motion for summary [adjudication],” (ibid.), Plaintiff’s objections on this ground are not proper.

V. Merits of Motion

A. Third Cause of Action

The third cause of action is for breach of the implied covenant of good faith and fair dealing. Plaintiff alleges Chun breached the implied covenant by: “(i) incurring liabilities on behalf of the Company in excess of $10,000 written consent of all Managers; (ii) purporting to borrow money from the Company without first obtaining the affirmative vote or written consent of a Majority Interest of the Members; (iii) failing to account to the Company, and hold for it, funds received by the Company from customers; (iv) diverting Company funds to his own personal use; (v) withdrawing Company capital without permission of the other members; (vi) failing to account to the Company for his use of Company assets; and (vii) failing to reimburse the Company for his portion of the purchase price of [the business].” (FAC, ¶ 54.)

Chun argues the Court should summarily adjudicate this claim because it is duplicative of the breach of contract claim. Although not clearly articulated by him, his position is that the existence of this duplicative claim constitutes a pleading defect. In presenting this argument, Chun relies on the allegations in the pleading as well as discovery responses that assertedly support his characterization of the allegations.

Because the pleading delimits the issues for the purpose of a motion for summary adjudication, such a motion necessarily tests the sufficiency of the pleading. (Hansra v. Super. Ct. (1992) 7 Cal.App.4th 630, 638–39.) “Where a complaint does not state a cognizable claim, it is not necessary to [consider the defendant’s evidence], since a defendant has no obligation to present evidence to negate a legally inadequate claim.” (Ibid.; accord Leek v. Cooper (2011) 194 Cal.App.4th 399, 412.) Under those circumstances, a court may simply conclude the cause of action lacks merit for the purpose of evaluating the motion for summary adjudication or treat the motion as one for judgment on the pleadings. (Hansra, supra, 7 Cal.App.4th at pp. 647–48.) This first approach is permissible when the pleading defect cannot be cured, but if the defect can be cured through amendment, courts typically treat the motion as one for judgment on the pleadings and give the plaintiff leave to amend. (Ibid.)

Turning to the substantive law, “[e]very contract contains an implied covenant of good faith and fair dealing providing that no party to the contract will do anything that would deprive another party of the benefits of the contract.” (Digerati Holdings, LLC v. Young Money Entertainment, LLC (“Digerati”)(2011) 194 Cal.App.4th 873, 885.) “The implied covenant protects the reasonable expectations of the contracting parties based on their mutual promises.” (Ibid.) Because the covenant of good faith and fair dealing is an implied term of a contract, “its breach [necessarily is] a breach of the contract, although a breach of a consensual (i.e., an express or implied-in-fact) contract term will not necessarily constitute a breach of the covenant.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393–94.) To state a claim, a plaintiff must allege the defendant’s conduct, “whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.” (Id. at p. 1395.) “The scope of conduct prohibited by the implied covenant depends on the purposes and express terms of the contract.” (Digerati, supra, 194 Cal.App.4th at p. 885.)

Chun engages in a mechanical comparison of the allegations in the first and third causes of action and determines the third cause of action is superfluous because Plaintiff’s breach allegations are word-for-word identical in both causes of action. (See FAC, ¶¶ 42, 54.) While Chun is correct that the allegations of breach are identical, this fact does not demonstrate the claims are duplicative or superfluous as that term has been used by courts in this context. A claim for breach of the implied covenant is not superfluous simply because a plaintiff also asserts a claim for breach of contract based on the same facts. (See Careau, supra, 222 Cal.App.3d 1371, 1395.) Rather, the test is whether the facts alleged necessarily amount to nothing more than breach of an express term. (Ibid.; see, e.g., Free Range Content, Inc. v. Google, Inc. (“Free Range”) (2016) (N.D.Cal. May 13, 2016, No. 14-CV-02329-BLF), 2016 WL 2902332.) This determination necessarily requires an evaluation of the terms of the parties’ agreement because, as discussed above, it is impossible to determine the nature and scope of the implied covenant and, in turn, the fundamental nature of the breach alleged without reference to those terms.

Here, by nature of Plaintiff’s reuse of allegations in the first and third causes of action, it has denominated the same conduct as breach of both express terms and the implied covenant. While this denomination may be inartful, it does not necessarily control. Chun has not engaged in any analysis of the breaches alleged and the express terms for the purpose of demonstrating the acts alleged qualify as mere breaches of express terms. While it is self-evident that some of the alleged breaches relate to express provisions of the contract—such as consent and voting requirements for certain transactions—the same cannot be said of other alleged breaches, such as diverting funds for personal use.

In summary, irrespective of whether Plaintiff included identical allegations in the first and third cause of action, Chun fails to demonstrate the third cause of action is superfluous based on applicable precedent and the terms of the parties’ agreement. Even if he did, he does not demonstrate summary adjudication is warranted in light of the nature of the purported defect. (See Hansra, supra, 7 Cal.App.4th at pp. 647–48.) And, while there is some authority for the proposition that a superfluous claim may be disregarded at the pleading stage (Careau, supra, 222 Cal.App.3d at p. 1395), the Sixth District has more recently stated superfluity is not a pleading defect that justifies sustaining a demurrer (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 889–90). For these reasons, Chun fails to carry his initial burden of demonstrating the third cause of action lacks merit.

B. Seventh Cause of Action

The seventh cause of action is for trespass. (See generally Ralphs Grocery Co. v. Victory Consultants, Inc. (2017) 17 Cal.App.5th 245, 261–62 [setting forth essential elements].) The bar is operated on leased premises at 55 South First Street. (FAC, ¶ 75.) Plaintiff alleges Chun continues to come to the bar without permission and has refused to leave when asked to do so. (FAC, ¶¶ 76–77.) In Chun’s memorandum of points and authorities, he never addresses the trespass claim. He also neglects to address the seventh cause of action in his separate statement. Accordingly, he fails to carry his initial burden of demonstrating the seventh cause of action lacks merit.

C. Conclusion

Chun fails to carry his initial burden of demonstrating the third and seventh causes of action lack merit. Accordingly, Chun’s motion for summary adjudication is DENIED.