Case Number: SC122569    Hearing Date: August 22, 2014    Dept: M

Tentative Ruling
Big Method, LLC v. Blitz Digital Studios, LLC
SC122569

The Plaintiffs’ complaint alleges that Gergory Cargill and John Furnari formed Big Method, LLC which was a full-service digital agency. Cargil, Furnari and Big Method (Plaintiffs) entered into an Asset Purchase Agreement (APA) with Blitz Digital Studios, LLC, wherein Blitz acquired the assets of bigMethod and entered into employment agreements with Cargill and Furnari. Plaintiffs allege that Blitz and its CEO, Ivan Todorov, and its Chief Creative Officer, Ken Martin, breached the APA and their employment agreements in a number of ways, including pocketing company funds for personal expenses thereby keeping the company cash balance low to avoid making distributions to Cargill and Furnari. Moreover, Todorov and Martin had repeatedly assured Cargill and Furnari that they had never taken distributions and all four were being treated equally.
Defendants have filed a demurer and motion to strike. Defendants claim that the 1st – 4th c/a and the 8th c/a do not state facts sufficient to constitute a c/a pursuant to CCP 430.10(e). Defendants have also brought a motion to strike the claim for reputation damages sought for the breach of the employment agreement, and for the claims of alter ego liability alleged against Todorov and Martin.
Defendants argue the following regarding the demurrer:
1. The Breach of Contract claims in the 1st and 3rd c/a, and which provide the basis for the Breach of the Implied Covenant of Good Faith and Fair Dealing claim in the 2nd c/a, fail to adequately plead the terms of the contract(s), how the contracts were breached, and the contracts are not attached to the complaint;
2. That Cargill and Furnari are signatories on the APA, but the contract was between the two entities and, therefore, the individual Plaintiffs may not seek to enforce it because they do not have standing to sue;
3. The 4th c/a for Fraud does not sufficiently allege the Plaintiffs’ reliance or damages. This is consistent with Plaintiffs’ attempt to “tortify” the alleged breach of contract; and
4. The 8th c/a for Constructive Trust is a remedy and not a c/a.

Plaintiffs have filed a well-written and thorough opposition brief dealing with all of the issues raised in the moving brief. Plaintiffs argue the following:
1. The Plaintiffs have adequately pled the legal effect of the 2 contracts and the Defendants’ alleged breaches thereof consistent with Constr. Protective Servs., Inc. v. TIG Specialty Ins. Co. (2002) 29 C 4th 189, 198-199;
2. The individual Plaintiffs are signatories to the APA and, therefore, at this stage of the proceedings have sufficient standing to assert a claim citing Berclain Am. Latina Baan Co. (1999) 74 Ca 4th 401, 405, and Cruz v. Cnty. Of Los Angeles (1985) 173 CA 3d 1131, 1134;
3. The 2nd c/a for breach of the implied covenant covers phases necessary to make workable and meaningful the covenants expressed in the contract citing Foley v. U.S. Paving Co. (1968) 262 CA 2d 499, 505;
4. The Fraud claim, 5th c/a, is sufficiently pled and encompasses not only material misstatements, but also the active concealment by the Defendants of material facts which induced Plaintiffs not to act to protect their financial condition; and
5. The Constructive Trust c/a, 8th, may be alleged when in conjunction with a Fraud claim citing Michaelian v. State Comp. Ins. Fund (1996) 50 CA 4th 1093, 1114.

Regarding the Motion to Strike, the Plaintiffs believe they have properly alleged alter ego liability pursuant to Corp. Code section 17101 and 17254 for improper distributions. Moreover, Plaintiffs contend that they have appropriately alleged alter ego liability in paragraphs 7 and 8 of the complaint.
Defendants have a filed reply brief for each motion.

OVERRULED / GRANTED:

Having read and considered the moving papers, the court tentatively overrules the demurrer pursuant to CCP 430.10, and grants the motion to strike pursuant to CCP 435 and 436 regarding reputation damages only, and rules as follow:

1. “The defendant cannot make allegations of fact in the demurrer which, if true, would disclose a defect in the complaint.” Ion Equipment Corp. v. Nelson (1980) 110 CA 3d 868, 881; Cook v. DeLa Guerra (1864) 24 C 37, 239;
2. “The defendant cannot strengthen the demurrer by bringing in evidentiary material that discloses a defect in the complaint. It is wholly beyond the scope of the inquiry to ascertain whether the facts stated are true or untrue. That is always the ultimate question to be determined by the evidence upon a trial of the questions of fact.” Colm v. Francis (1916) 30 CA 742, 752;
3. A demurrer tests the sufficiency of the pleading and whether the complaint states a valid cause of action – not whether it is true. Thus, no matter how unlikely or improbable, plaintiff¿s allegations must be accepted as true for the purpose of ruling on the demurrer. Del E. Webb Corp v. Structural Materials Co (1981) 123 CA 3d 593, 604. The question of plaintiff¿s ability to prove these unlikely allegations, or possible difficulties in making such proof, is of no concern in ruling on a demurrer. Committee on Children¿s TV v. General Foods Corp. (1983) 35 C 3d 197, 213-214;
4. If the plaintiff can state a cause of action under any possible legal theory, the demurrer should be overruled. Von Batsch v. American Dist. Telegraph Co (1985) 175 CA 3d 1111, 1117;
5. The court is satisfied that the Defendants have sufficient notice of the claims brought by the Plaintiffs, that the causes of action are sufficiently pled and it will not cause undue hardship or complication to require the Defendants to learn additional details about the claims during the discovery process;
6. As for the Motion to Strike, it appears the Plaintiffs, by not opposing the facially valid arguments made by the Defendants regarding reputation damages have conceded the point and the Court will, therefore, grant the motion to strike page 11, line 3 of the complaint, the phrase “and professional and business reputation”; and
7. CRC 3.1320(g) provides: “Following a ruling on a demurrer, unless otherwise ordered, leave to answer or amend within 10 days shall be deemed granted….”
8. Motion to strike is granted with leave to amend. FAC is to be served and filed within ten days;
9. Defendants shall give notice of today’s rulings and timely file proof of service thereof.