Case Number: BC511734    Hearing Date: April 22, 2014    Dept: 34

Moving Party: Defendants Battery-Biz, Inc.; Ophir Marish; Elad Marish; and Keegan Marish-Roehr (“defendants”)

Resp. Party: Plaintiff David Derse (“plaintiff”)

Defendants’ demurrer to the third and fourth causes of action in the complaint is OVERRULED.

Defendants’ motion to strike is DENIED.

BACKGROUND:

Plaintiff commenced this action on 6/10/13 against defendants for: (1) age discrimination; (2) wrongful termination; (3) breach of fiduciary duty; and (4) breach of implied covenant of good faith and fair dealing. Plaintiff alleges he was wrongfully terminated by defendants for two reasons: because of his age, and so that they could avoid paying his high salary or the full value of his stock ownership interest.

ANALYSIS:
Demurrer

Defendants demur to the third and fourth causes of action on the grounds that the complaint fails to state a cause of action and is uncertain.

1. Uncertainty

Demurrers for uncertainty are strictly construed, because discovery can be used for clarification, and apply where defendants cannot reasonably determine what issues or claims are stated. (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616; Weil & Brown, Civ. Pro. Before Trial (The Rutter Group 2008) ¶ 7:85.) “Demurrer for uncertainty will be sustained only where the complaint is so bad that the defendant cannot reasonably respond; i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her.” (Weil & Brown, ¶ 7:85 [citing Khoury, 14 Cal.App.4th at p. 616].)

Defendants’ demurrer for uncertainty is not well taken. The allegations are not so unclear that defendants cannot reasonably respond. More facts may be obtained through the discovery process.

2. First Cause of Action for Breach of Fiduciary Duties

Defendants argue that this cause of action should have been alleged as a derivative action. “‘[T]he action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock or property without any severance or distribution among individual holders, or if it seeks to recover assets for the corporation or to prevent the dissipation of its assets.’” (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106 [citing Gagnon Co., Inc. v. Nevada Desert Inn (1955) 45 Cal.2d 448, 453; Sutter v. General Petroleum Corp. (1946) 28 Cal.2d 525, 530].) “[A]n individual cause of action exists only if the damages were not incidental to an injury to the corporation. (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 124.) “The cause of action is individual, not derivative, only ‘ “where it appears that the injury resulted from the violation of some special duty owed the stockholder by the wrongdoer and having its origin in circumstances independent of the plaintiff’s status as a shareholder.” ’ (Ibid. [quoting Rankin v. Frebank Co. (1975) 47 Cal.App.3d 75, 95].) “Thus, where the wrongful acts of a majority shareholder amounted to misfeasance or negligence in managing the corporation’s business, causing the business to lose earnings, profits, and opportunities, and causing the stock to be valueless, the court held that the claim was derivative and not individual because the resulting injury was to the corporation and the whole body of its stockholders.” (Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 426 [citing Nelson, 72 Cal.App.4th at pp. 125-127].)

“The stockholder’s individual suit, on the other hand, is a suit to enforce a right against the corporation which the stockholder possesses as an individual.” (Jones, supra, 1 Cal.3d at p. 107 [internal quotations omitted].) “The individual wrong necessary to support a suit by a shareholder need not be unique to that plaintiff. The same injury may affect a substantial number of shareholders. If the injury is not incidental to an injury to the corporation, an individual cause of action exists.” (Ibid.) The court in Jones allowed an individual action where the plaintiff, a minority shareholder, alleged that majority shareholders created a separate entity and then rendered the corporation’s stock unmarketable except to that entity, and then refused to purchase plaintiff’s stock at a fair price. (Id. at p. 105.) The court noted: “Although [the plaintiff] does allege that the value of her stock has been diminished by defendants’ actions, she does not contend that the diminished value reflects an injury to the corporation and resultant depreciation in the value of the stock. Thus the gravamen of her cause of action is injury to herself and the other minority stockholders.” (Id. at p. 107.)

Plaintiff alleges he is the owner of 5% of the outstanding shares of stock in defendant Battery-Bitz, Inc. (Compl., ¶¶ 1, 9.) Plaintiff alleges that from January 2007 to October 2012 he was an employee of Battery-Biz, serving as its Vice President of Retail Sales. (Id., ¶ 8.) Plaintiff alleges that in October 2012 he was wrongfully terminated, which triggered a provision in the shareholder agreement requiring defendants to purchase plaintiff’s shares. (Id., ¶¶ 10, 11.) Plaintiff alleges that the value of his shares had decreased due to certain events that occurred in the market place, and that, at the time of his termination, he expected the company’s revenues (and thus the value of the shares) to improve in the future. (Id., ¶¶ 13-17.) Plaintiff alleges that defendants decided to terminate him in October 2012 in order to force the sale of the stocks at a lower rate. (Id., ¶¶ 18, 22.) These allegations form the basis of the claims in the third cause of action. (See id., ¶ 47.) (Plaintiff also alleges that he was terminated due to age discrimination, which is the basis of his first and second causes of action. While these two alleged bases for his termination are perhaps inconsistent, plaintiff is allowed to allege inconsistent theories in his complaint. (See, e.g. Crowley v. Katleman (1994) 8 Cal. 4th 666, 690; Adams v. Paul (1995) 11 Cal.App.4th 583, 593.)

These allegations establish that plaintiff is seeking an individual claim, and not a derivative claim. Though plaintiff makes a conclusory allegation that defendants’ conduct caused Battery-Biz to lose value (see Compl., ¶ 49), the gravamen of his claim is that defendants strategically terminated his employment at a time when they knew his shares would be purchased at a lower price. Plaintiff is not alleging that defendants caused the value of the stock to be lower; indeed, plaintiff alleges that the lower value was caused by outside factors and that the value was likely going to increase again. (See id., ¶¶ 14-16.) Therefore, plaintiff’s cause of action is based on an injury to himself and not to Battery-Biz.

Accordingly, defendants’ demurrer to the third cause of action is OVERRULED.

3. Fourth Cause of Action for Breach of the Covenant of Good Faith and Fair Dealing

“There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.” (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658.) The elements of this cause of action include: (1) the existence of a contract between the parties; (2) plaintiff did all, or substantially all of the significant things that the contract required or was excused from doing so; (3) all conditions required for defendant’s performance have occurred or were excused; (4) defendant unfairly interfered with plaintiff’s right to receive the benefits of the contract; and (5) plaintiff was harmed as a result. (CACI 325.)

Defendants argue that the covenant does not apply to actions for termination of employment. However, the California Supreme Court has recognized that “the covenant might be violated if termination of an at-will employee was a mere pretext to cheat the worker out of another contract benefit to which the employee was clearly entitled, such as compensation already earned.” (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 353, fn. 18.) This is precisely what plaintiff is alleging. Plaintiff alleges that he was entitled to contractual benefits under the shareholder agreement. (See Compl., ¶¶ 53-54.) Plaintiff alleges that he did all of the significant things that the contract required or was excused from doing so. (Id., ¶ 55.) Plaintiff alleges that defendant Battery Biz unfairly deprived plaintiff of the benefits under the shareholder agreement by terminating plaintiff for the purpose of purchasing his shares at a lower value. (Id., ¶ 57.) Therefore, plaintiff has sufficiently alleged a claim for breach of the covenant of good faith and fair dealing.

Accordingly, defendants’ demurrer to the fourth cause of action is OVERRULED.

Motion to Strike

Defendants move to strike plaintiff’s references to and requests for punitive damages. The standard of proof for recovery of punitive damages is “clear and convincing” evidence of malice, fraud, or oppression. (Civil Code § 3294(a).) Under Civil Code 3294(c),

[¶] (1) ‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. [¶] (2) ‘Oppression’ means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights. [¶] (3) ‘Fraud’ means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

“In determining whether a complaint states facts sufficient to sustain punitive damages, the challenged allegations must be read in context with the other facts alleged in the complaint. Further, even though certain language pleads ultimate facts or conclusions of law, such language when read in context with the facts alleged as to defendants’ conduct may adequately plead the evil motive requisite to recovery of punitive damages.” (Monge v. Superior Court (1986) 176 Cal.App.3d 503, 510.) The inquiry is generally fact specific to the nature of the claim raised and the context in which the damages are sought, but “the critical element is an ‘evil motive’ of the defendant.” (Ibid.) “‘Punitive damages are proper only when the tortious conduct rises to levels of extreme indifference to the plaintiff’s rights, a level which decent citizens should not have to tolerate.'” (American Airlines v. Sheppard (2002) 96 Cal.App.4th 1017, 1051.)

“An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.” (Civ. Code, § 3294(b).)

Plaintiff alleges that defendants, including Battery-Biz, its president and CEO (defendant Ophir Marish), and a majority stockholder (defendant Keegan Marish-Roehr), wrongfully terminated plaintiff when his stock had a diminished value. (See Compl., ¶¶ 2-3, 14-19.) Plaintiff alleges that defendants knew that Battery-Biz’s revenues — and therefore the value of the stocks — would substantially increase in the future. (Id., ¶¶ 17-18, 22.) Plaintiff was terminated without cause. (Id., ¶ 19.) Plaintiff also alleges that his termination was the result of age discrimination. (Id., ¶¶ 23-26.) These allegations are sufficient to support claims for punitive damages against all defendants because they suggest that defendants engaged in despicable conduct with willful and conscious disregard of plaintiff’s rights.

Accordingly, defendants’ motion to strike is DENIED.

Defendants to answer within 10 days.