Case Name:   Hale, et al. v. Social Valley LLC, et al.

Case No.:       1-12-CV-230653 (lead case, consolidated with 1-13-CV-244046)

 

After full consideration of the evidence, the separate statements submitted by each party, and the authorities submitted by each party, the court makes the following rulings:

 

This is an action for breach of a contract.  Defendants Steve Ernst (“Ernst”) and Bic Pho (“Pho”) are managing members and owners of defendant Social Valley, LLC (“Social Valley”) (collectively, “Defendants).  (See first amended complaint in case no. 1-13-CV-244046 (“Johnson FAC”), ¶¶ 11-12.)  Defendants represented to plaintiffs Jason Lee Johnson (“Johnson”) and Keith Aaron Hale (“Hale”) (collectively, “Plaintiffs”) that they were planning a September 13-15, 2012 event called Social World 2012 (“Social World”) to take place at California’s Great America and needed famous recording artists to perform at their event.  (See Johnson FAC, ¶ 14; see also complaint in case no. 1-12-CV-230653 (“Hale complaint”), ¶ 11.)

 

On February 10, 2012, Hale entered into a services agreement with Social Valley that required Hale to obtain one or more artists, arrange for transportation and have the artists make public appearances and perform at the conference in exchange for $105,000 plus 50% of profits on ticket sales and 50% of the concert sponsorship profit.  (See Hale complaint, ¶¶ 12-13.)  On April 6, 2012, Hale entered into an engagement agreement with Entertainment Artists Nashville, the management agency for musical artist Digital Underground.  (See Hale complaint, ¶ 14.)  On April 8, 2012, Hale engaged the services of Johnson’s company, The Conglomerate Group, LLC (“Conglomerate”), to engage artists.  (See Hale complaint, ¶ 15.)

 

On April 17, 2012, Johnson—on behalf of Conglomerate—entered into a finder’s agreement with Social Valley whereby Johnson was to locate recording artists to perform at Social World.  (See Johnson FAC, ¶ 15, exh. A.)  The finder’s agreement required Johnson to make introductions to certain musical artists such as Jordin Sparks and Melanie Fiona, and that if Social Valley enters into any agreement with those artists, Johnson would be entitled to 10% of the all-in fee.  (See Johnson FAC, ¶ 16, exh. A.)  On April 23, 2012, Johnson entered into a firm offer with Jordin Sparks and Melanie Fiona to perform at Social World.  (See Johnson FAC, ¶¶ 17-18.)  On April 27, 2012, Defendants and Johnson entered into a promotion agreement for services of artists whereby Defendants utilized Johnson’s services in exchange for $100,000 and $30,000 for the artists.  (See Johnson FAC, ¶¶ 19-20, 23; see also Hale complaint, ¶¶ 16-17.)  The agreement provided that in the event that Defendants cancelled the contract at no fault of the artist or Johnson, Defendants were responsible for all payments.  (See Johnson FAC, ¶¶ 21, 24.)

 

On May 5, 2012, Pho contacted Plaintiffs and informed them that Social Valley did not acquire the necessary capital to fund the cost of the production and that Social World would not take place as scheduled.  (See Johnson FAC, ¶ 25; see also Hale complaint, ¶ 18.)  Despite Plaintiffs’ performance, Defendants failed to pay $60,000 to Hale and all amounts owed to Johnson.  (See Johnson FAC, ¶¶ 34-47; see also Hale complaint, ¶¶ 21-24.)  On August 17, 2012, Hale filed his complaint, asserting causes of action for: breach of contract; fraud through concealment; and, fraud through false promise.  On February 5, 2014, Johnson filed his FAC, asserting causes of action for:  breach of contract—finder’s agreement; breach of contract—promotion agreement 1, Jordin Sparks; breach of contract—promotion agreement 2, Melanie Fiona; fraud through concealment; and, fraud through false promise.

 

On August 8, 2014, Plaintiffs’ motion to deem matters admitted against Pho, and motion for terminating sanctions against Pho was granted by the Court [Hon. Manoukian].  Pho moved for reconsideration of the August 8, 2014 order, and, on September 25, 2014, the Court denied Pho’s motion.

 

Plaintiffs now move for summary adjudication against Defendants of:

• Hale’s first cause of action for breach of contract;
• Johnson’s first through third causes of action for breach of contract; and,
• the determination that Social Valley is the alter ego of Pho and Ernst.

 

The motion as to defendant Pho

 

In light of the Court’s August 8, 2014 order granting terminating sanctions against Pho, and subsequent September 25, 2014 order denying Pho’s motion for reconsideration of that order, Plaintiffs’ motion is MOOT as to defendant Pho.

 

The motion as to defendant Social Valley

 

Plaintiff moves for summary adjudication as to Social Valley, attaching a Limited Liability Short Form Certificate of Cancellation, filed September 13, 2012 with the State of California Secretary of State and signed by Ernst as “member manager.”  (See Krueger decl., exh. C (“Ernst depo”), exh. 11 (“Certificate of Cancellation”).)  Plaintiff argues that Social Valley is barred from opposing the motion as it is a cancelled limited liability company.

 

The certificate of cancellation is filed after dissolution of the limited liability company (“LLC”), and upon cancellation, its powers, rights and privileges cease.  (See Corp. Code § 17707.08, subds. (b) and (c) (stating that “[t]he persons who filed the certificate of dissolution shall cause to be filed in the office of, and on a form prescribed by, the Secretary of State, a certificate of cancellation of articles of organization upon the completion of the winding up of the affairs of the limited liability company pursuant to Section 17707.06”); also stating that “[u]pon filing a certificate of cancellation pursuant to subdivision (b), a limited liability company shall be canceled and its powers, rights, and privileges shall cease”).)  Here, those powers, rights and privileges include its ability to defend itself and oppose the instant motion for summary adjudication.  (See Tsakos Shipping & Trading, S.A. v. Juniper Garden Town Homes, Ltd. (1993) 12 Cal.App.4^th 74, 85-86 (noting that Jupiter’s filing of certificate of cancellation with Secretary of State led to lack of capacity to appear in court under former statute); see also Mauctrst v. Traux (July 11, 2014) 2014 Cal. App. Unpub. LEXIS 4879 *1, *11-*12 (nonpub. opn. stating that after the filing of the certificate of cancellation, “the articles of organization of Mauctrst were cancelled, and its powers, rights, and privileges, including its ability to appeal from an adverse judgment, ceased… [and, t]hus, like Lairtrust, Mauctrst lacks the capacity to pursue this appeal, and the appeal is dismissed as to it”).)

 

Here, Plaintiffs present the agreements, their declarations stating that they performed pursuant to the agreements and have not been paid in breach of those agreements.  (See Pls.’ separate statement of undisputed material facts, nos. (“UMFs”) 1-30; see also Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913 (stating elements for breach of contract cause of action as: the existence of a contract; plaintiff’s performance or excuse for nonperformance; defendant’s breach; and damages to plaintiff therefrom).)  This is sufficient evidence that would require a reasonable trier of fact to find that Social Valley indeed breached the subject agreements.   Social Valley lacks capacity to oppose the motion.  Accordingly, Plaintiffs’ motion for summary adjudication of the breach of contract causes of action is GRANTED against defendant Social Valley.

 

The motion as to defendant Ernst

 

In Sonora Diamond Corp. v. Super. Ct. (Sonora Union High School District) (2000) 83 Cal.App.4^th 523, the Court stated:

 

In California, two conditions must be met before the alter ego doctrine will be invoked.  First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.  [Citations.]  Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.  [Citations.]  Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers.  [Citations.]  No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied.

 

(Id. at pp. 538-539.)

 

Plaintiffs present evidence that:

• Pho and Ernst used the same office of business location for their personal business as they used for Social Valley (UMF 31);
• Pho and Ernst commingled assets when Pho transferred money from his personal account to the business account only for the purpose of paying bills (UMF 33);
• Pho and Ernst failed to adequately capitalize Social Valley and did not have money to pay for the artists on the day they signed the contracts (UMF 34);
• Pho and Ernst used Social Valley for a single venture, Social World 2012 (UMF 35);
• Pho and Ernst disregarded legal formalities by filing the short form certificate of cancellation stating that Social Valley never conducted business and had no outstanding debts or liabilities (UMF 36);
• Pho and Ernst used Social Valley to procure services by engaging Plaintiffs and the artists, and then cancelled the event without paying for the services (UMF 37);
• Ernst filed the certificate of cancellation (UMF 38);
• An inequitable result will occur if the acts in question are treated as those of Social Valley alone because Social Valley does not have funds to pay the damages incurred as a result of Pho and Ernst’s breach of contract and Ernst’s improper cancellation of Social Valley (UMFs 39-40).

 

Based on the stated factors above, Plaintiffs have met their initial burden to demonstrate that Social Valley is the alter ego of Ernst and Pho and that Ernst is thus liable on the breach of contract causes of action.  (See Stark v. Coker (1942) 20 Cal.2d 839, 846 (alter ego liability where individual and his wife owned 139 of 150 shares of stock, conducted affairs of corporation at house, with corporation conducting no business and, at time of trial, having no assets).)

 

In opposition, Ernst first asserts that “Plaintiffs’ moving papers are completely devoid of any reference to Defendants’ raised affirmative defenses.”  (Defs.’ memorandum of points and authorities in opposition to motion for summary adjudication (“Opposition”), p.11:19-20.)  However, Ernst misunderstands Plaintiffs’ burden.  Plaintiffs meet their burden of demonstrating that there is no defense to a cause of action by proving each element of the cause of action.  (See Code Civ. Proc. § 437c, subd. (p)(1).)

 

Ernst also argues that Plaintiffs misrepresented that they were able to obtain talent at a discounted rate—which was a condition of acceptance.  (See Opposition, pp.12:3-28, 13:1-10.)  However, the evidence in support of the assertion is not relevant to the subject contracts or do not support Ernst’s assertion regarding the existence of a condition of acceptance, much less a condition with sufficient, definite terms.  This argument is without merit, and Plaintiffs’ objections related to the purported objections, numbers 1-5 are SUSTAINED.

 

However, Ernst’s declaration in opposition also states that funds from Social Valley were not paid to Ernst for his personal expenses and that Social Valley adhered to its operating agreement.  (See Ernst decl., ¶¶ 11-12.)  These statements support Ernst’s assertion that he followed corporate formalities and did not treat Social Valley as a mere shell.  Accordingly, Ernst demonstrates the existence of a triable issue of material fact, and the motion for summary adjudication should be DENIED as to defendant Ernst.

 

The objections to paragraphs 11 and 12, objection numbers 6-7 are OVERRULED.

 

The Court will prepare the order.  After service of notice of entry of this order signed by the Court, Plaintiff shall present a judgment consistent with this order against Social Valley, LLC.