CIV 524396 BRAM PORTNOY VS. PEDER JUNGCK, ET AL.

BRAM PORTNOY MARC J. KESTEN

PEDER JUNGCK EDWARD A. KRAUS

DEMURRER TO FIRST Amended COMPLAINT of PORTNOY BY PEDER JUNGCK

· The Demurrer as to the issue of statute of limitations is OVERRULED. This Court previously sustained Defendant’s demurrer with leave to amend on this issue, basing its decision in part on distinguishing the case of Whitten v. Dabney (1915) 171 Cal.2d 621 because that matter dealt with a shareholder derivative action. However, a closer reading of that case, coupled with subsequent legal authority, convinces this Court that, as Plaintiff suggested in his opposition, the Court’s interpretation was too narrow. It really matters not that Whitten involved a shareholder derivative action, whereas here Plaintiff is a receiver. The focus is: Where those in control of a corporation are alleged to have engaged in wrongdoing which they conceal, may a plaintiff who stands in the shoes of the corporation rely upon the principal of equitable tolling to seek relief? The answer is yes.

o Beal v. Smith (1920) 46 Cal.App.271 is illustrative. It states that when persons associate themselves together for the purpose of promoting the organization of a corporation whose stock and securities are to be placed upon the market for sale to the public, any unreasonable profits which such persons derive from the organization of the corporation, made possible only by concealment from those who have placed their trust in the promoters, are deemed secret profits, which the corporation or a stockholder on its behalf may sue to recover. Therefore, so long as the corporation itself remains under disability and is powerless to act by virtue of the fact its control is in the hands of a board of directors engaging in fraud, the statute of limitations is tolled.

o Likewise, in Admiralty Fund v. Peerless Ins. Co. (1983) 143 Cal. App. 3d 379, 387 the Court states: “… Further, where a claim arises from a director’s or employee’s defalcation and the wrongdoer’s control makes discovery impossible, the statute of limitation tolls. [Citation]

o Plaintiff, acting as receiver, stands in the shoes of the corporation, but only to the extent that he may prosecute actions and claim defense available to the corporation. This is the proposition of Allen v. Ramsay (1960) 179 Cal.App.2d 843 relied upon by Defendant, but this does not preclude Plaintiff’s claim. Where the corporation is allegedly harmed by the surreptitious collusion of its directors to do harm to the corporation, the statute of limitations begins to run only upon discovery of said collusion and concealment. Plaintiff has adequately alleged specific facts showing that the Receiver first became aware of this hidden scheme to benefit Defendant sometime after January 2013. That is when the statute of limitations began. The complaint was filed timely.

· The Demurrer as to the First Cause of Action (Conversion) is OVERRULED.

o The complaint sufficiently sets forth facts meeting the elements of conversion. Conversion requires: Plaintiff’s ownership or right to possession of the property; defendant’s conversion by wrongful act or disposition of the property; and damages

o Plaintiff alleges the loan as evidenced by the Promissory Note was a sham for which Defendant and others colluded to keep secret the fact that any payment to Defendant under the Note would never be re-paid. The existence and validity of the loan is challenged in the FAC, and as such the possession and retention of the funds by Defendant is improper.

· The Demurrer as to the Third Cause of Action (Breach of Fiduciary Duty) is OVERRULED.

o Plaintiff alleges that the Note attached to the FAC is not a valid contract because it is an instrument of self-dealing among the SVIC management and in breach of their fiduciary duties (Par. 20). It is also alleged that SVIC management failed to disclose that loans would be extended without any obligation to repay the funds advanced (Par. 22). The SVIC management agreed not to enforce the Note against Defendant (Par. 25).

· The Demurrer on the issue of the pendency of another action is OVERRULED.

o Defendant does not identify specifically what is duplicative of the Los Angeles County complaint, which involves more than 25 Defendants, 484 allegations and 59 pages. Defendant’s plea for abatement reverses the rule of procedure, for any such claims would allow for a court to abate a second action arising out of the same transaction and between the same parties as an earlier filing. This case in San Mateo County was the first-filed case.

· If the tentative ruling is uncontested, it shall become the order of the Court. The moving party shall prepare a written order consistent with the Court’s ruling for the Court’s signature, pursuant to California Rules of Court, Rule 3.1312, and provide written notice of the ruling to all parties who have appeared in the action, as required by law and the California Rules of Court.