Case Number: BC543936    Hearing Date: August 11, 2014    Dept: 34

Moving Party: Defendants Anthony P. Souza, Diana Souza, Reel Sense LLC, Skybm LLC, Skym LLC, Simpson Estates LLC, and Generation Development LLC (“defendants”)

Resp. Party: Plaintiffs Kevin Keenan and Thanh Thuy Ho (“plaintiffs”)

Defendants’ motion to strike is DENIED.

PRELIMINARY COMMENTS:

The court would request that counsel be a bit more careful in their citations. For instance, Plaintiffs cite to Civil Code § 3439.07(C) for the proposition that “it is black-letter law that punitive damages are recoverable in cases involving breach of fiduciary duty.” (Opp., p. 5:26 – 6:2.) However, Civil Code § 3439.07 concerns the Uniform Fraudulent Transfer Act, and subsection (C) merely states that “If a creditor has obtained a judgment on a claim against the debtor, the creditor may levy execution on the asset transferred or its proceeds.” Plainitiffs also cite to the case of Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 840 for the same proposition. (See, Opp., p. 5:26 – 6:2.) However, the page cited simply holds that, under the UFTA, Civil Code § 3439.07(a)(3)(C) “empowers the court to award ‘[a]ny other relief the circumstances may require.’” (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 840.)

And while Defendants are correct that Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269 stands for the proposition that “punitive damages may never be awarded for simple breach of contract, no matter how willful that each may be” (see Motion, p. 3:20-21), that proposition is at p. 1286, not p. 1287 as stated in defendants’ motion.

BACKGROUND:

Plaintiffs commenced this action on 4/29/14 against defendants for: (1) breach of joint venture agreement; (2) breach of joint venture fiduciary duty; (3) dissolution and accounting; (4) breach of manager fiduciary duty; (5) LLC accounting; (6) inspection of records; and (7) tenancy in common accounting. Plaintiffs allege that they entered into a joint venture agreement with the Souza defendants to manage certain properties in Riverside County. (Compl., ¶¶ 7-8.) Plaintiffs allege that the Souza defendants breached their fiduciary duties under this agreement by failing to distribute profits to which plaintiffs were entitled, ousting plaintiff Keenan from his management role in the properties, changing the locks on one of the properties and transferring utilities into a different name, diverting joint venture assets and other money to defendants’ own use, failing to properly account concerning the receipt and expenses in the business, improperly charging expenses to the business, denying plaintiffs access to the books and records, and interfering with plaintiffs’ rights to receive the benefits of the agreement. (Id., ¶ 18.)

Plaintiffs also allege that they are owners of management interests in Skybm LLC, Skym LLC, Simpson Estates LLC, and Generation Development LLC. (See Compl., ¶¶ 29-32.) Defendant Anthony Souza is the manager of these LLCs. (Id., ¶ 33.) Plaintiffs allege that Souza breached his managerial fiduciary duties as to these LLCs in the same way that such duties were breached with regard to the joint venture. (Id., ¶ 35.)

ANALYSIS:

Defendants’ move to strike paragraph 34 of the complaint and the requests for punitive damages in the prayer for relief. 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.)

Plaintiffs allege that defendants breached their fiduciary duties under the joint venture agreement, and Anthony Souza breached his managerial fiduciary duties by failing to distribute profits to which plaintiffs were entitled, ousting plaintiff Keenan from his management role in the properties, changing the locks on one of the properties and transferring utilities into a different name, diverting joint venture assets and other money to defendants’ own use, failing to properly account concerning the receipt and expenses in the business, improperly charging expenses to the business, denying plaintiffs access to the books and records, and interfering with plaintiffs’ rights to receive the benefits of the agreement. (Id., ¶¶ 18, 35.) Though this conduct is also alleged for the breach of contract claim, plaintiffs may allege the tort causes of action in the alternative. These allegations are sufficient, at the pleadings stage, to support requests for punitive damages.

Defendants’ motion to strike is DENIED.