Case Number: BC532525    Hearing Date: September 16, 2014    Dept: 40

ENRICO AMOR, et.al. v. CAMBRIDGE HILLS, INC., et.al.
DEMURRER TO THE COMPLAINT

Case No: BC532525
Date: September 16, 2014
Tentative Ruling: The demurrer is sustained with 10 days leave to amend for failure to state a cause of action and uncertainty.

The demurrer challenges the complaint on grounds it fails to state facts sufficient to constitute a cause of action and is vague and ambiguous.

In challenging the complaint, Defendants raise three arguments: (1) Plaintiffs lack standing; (2) Plaintiffs fail to state facts sufficient to constitute a cause of action; and (3) Plaintiff’s allegations are uncertain. To plead corporate dissolution, one must provide (1) a verified complaint; and (2) a qualifying person: (i) half or more of the directors; (ii) shareholder(s) holding at least 33 and 1/3 percent of total number of outstanding shares; the outstanding common shares; the equity of the corporation (excluding shares owned by persons participating in fraud, mismanagement, abuse or persistent unfairness); or (iii) any shareholder or shareholders of a close corporation; and (3) any cognizable ground. (Corp. Code §1800(b).)

Cognizable grounds are (1) the corporation abandoned its business for more than a year; (2) the corporation has even number of directors equally divided who cannot agree as to the management, such that: (i) the business can no longer be conducted to advantage; or (ii) there is danger that corporation’s property and business will be impaired or lost; and holders of voting shares are so divided into factions that they cannot elect a board of an uneven number; (3) there is internal dissension and factions of shareholders are so deadlocked that its business can no longer be conducted with advantage to its shareholders; or the shareholders failed at two consecutive annual meetings at which all voting power was exercised, to elect successors to directors whose terms have expired or would have expired upon election of their successors; (4) those in control have been guilty of, or knowingly countenanced: persistent and pervasive fraud; mismanagement; abuse of authority; or persistent unfairness toward any shareholders; (5) corporate property is being misapplied or wasted by directors or officers; (6) liquidation is reasonably necessary for the protection of rights or interests of the complaining shareholder(s), where there are 35 or fewer shareholders as determined by Section 605; or (7) the period for which the corporation was formed terminated without extension. (Id.)

Defendants argue Plaintiffs lack standing due to their failure to verify the complaint. Specifically, Plaintiffs Cynthia Amor; Ramil Brizuela; Rodelio Amante; and Aida Amante have not verified the complaint and Enrico Amor, the only Plaintiff to verify the complaint, has not pled that he owns more than 33.3% of the shares. As the opposition points out, the proper procedure for challenging an improper verification is a motion to strike. The reply does not revisit the issue of standing.

“ ‘[T]he proper objection where a party fails to verify a pleading is a motion to strike which may be made only upon timely notice and provides for hearing and extension of time to answer.’ ” (Zavala v. Bd. of Trustees (1993) 16 Cal.App.4th 1755, 1760 (quoting Perlman v. Muni. Ct. (1979) 99 Cal.App.3d 568, 575).) Thus, the demurrer may not be sustained on this basis. Further, where verification is required and there are multiple parties, it is sufficient that one of the parties verify the answer. (CCP §446; Butterfield v. Graves (1902) 138 Cal. 155, 158.) It is also well taken that verification and standing are not synonymous. Here, Plaintiffs have pled facts indicating they are “a qualifying person.” Thus, the demurrer is not be sustained on this basis.

Defendants also argue that in pleading a cognizable ground for dissolution, Plaintiffs have only pled conclusions concerning internal dissention and actions taken by certain shareholders. The demurrer argues only certain “buzz words” are alleged. Generally, complaints must contain ultimate facts. (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.) “‘[U]ltimate fact’ is a slippery term, but in general it refers to a core fact, such as an element of a claim or defense, without which the claim or defense must fail.” (Yield Dynamics, Inc. v. Tea Systems Corp. (2007) 154 Cal.App.4th 547, 558.) Paragraph 6 in the complaint alleges the actions warranting dissolution including internal dissention such that two or more factions of shareholders have deadlocked business; the directors, officers, and shareholders in control are mismanaging the corporation and abusing their authority; and assets are being misapplied and wasted. As to Rosario Cachola specifically, the complaint alleges she has forged the signatures of several Plaintiffs to engaged in real estate transactions related to the corporation, has not disclosed that he is acting as a dual agent, has not disclosed that he has earned commission on purchases made by the corporation, had underfunded his capital contributions, has taken funds from escrow forfeitures, has misappropriated funds and used it for the benefit of some Arlene Cachola, among other alleged wrongful acts.

It is not well taken that the allegations as to Cachola alone support a demurrer for uncertainty, however the allegations do not to indicate how the conduct taken by Rosario Cachola constitutes action taken by all three of officers/shareholders identified, who are alleged to have 48.5% control of the corporation. While all three are alleged to be in control, there is no allegation that all three took the actions attributed to Cachola. As to the alleged deadlock, the necessity of liquidation, and the misappropriation, the complaint offers no facts supporting any of these contentions. The allegations put forth nothing more than conclusions. (See e.g. Buss v. J. O. Martin Co. (1966) 241 Cal.App.2d 123, 135-36.) Thus, the demurrer is sustained with leave to amend.

Defendants argue that to the extent the complaint reveals misconduct by an officer, shareholder, or director, those claims belong to the corporation, requiring a properly commenced derivative suit. A shareholder may bring a derivative suit on the corporation’s behalf where management (or any third party) breaches a duty owed to the corporation and the corporation fails to assert its cause of action. The shareholder is merely a nominal plaintiff in such an action. Even though the corporation is joined as a nominal defendant, it is the real party in interest to which any recovery usually belongs. (See Grosset v. Wenaas (2008) 42 C4th 1100, 1108.) The corporation must be joined as a nominal defendant in a derivative action. The corporation is an indispensable party because its rights are being litigated, and a court has no jurisdiction to adjudicate such rights in its absence. (Keeler v. Schulte (1957) 47 C2d 801, 803.) It is well taken that here, Plaintiff need not choose one remedy or the other, as a shareholder derivative suit is not impacted by a past or pending dissolution and a derivative suit is not a prerequisite to a request for dissolution. (E.g. Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 215.) Therefore, the demurrer is not sustained on this basis.

Regarding the demurrer for uncertainty, Defendants argue Plaintiffs attempt to allege that Arlene Cachola; Rosaio Cachola; and Randy Boy Paulasa engaged in the acts warranting dissolution, yet failed to allege how the conduct rises to the level of “persistent and pervasive” fraud rendering the complaint ambiguous. It is also argued the complaint focuses on one director solely to explain the misdeeds of all those named. 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.) Regarding uncertainty, “[t]here is no need to require specificity in the The Court finds that as to these directors, the complaint is uncertain. Therefore, the demurrer is sustained for uncertainty with leave to amend to detail the alleged misdeeds of Arlene Cachola; Rosaio Cachola; and Randy Boy Paulasa.