Case Number: KC070386 Hearing Date: September 17, 2019 Dept: O

Tentative Ruling

See below.

Background

Plaintiff Kevin Kent (“Plaintiff”) alleges that he has a 25% ownership interest in Leviathan Industries (“Leviathan”) and a 33.3% ownership interest in Jameson, Inc., fka Jameson Insurance Inc. and that Defendants Kathleen Garvey (“K. Garvey”) and Michael Garvey (“M. Garvey”) (collectively, “The Garveys”) are the majority owners of Leviathan and Jameson. Plaintiff alleges that on or about December 3, 2013, K. Garvey negotiated a $500,000.00 loan from Jameson Insurance Company, which was secured by a deed of trust on property without Plaintiff’s knowledge or consent. Plaintiff alleges that K. Garvey and M. Garvey sold the secured property, received the funds due on the secured note, used those funds for a second property, and then repeated that process for a third property. Plaintiff alleges that the note is no longer secured, the funds are missing and The Garveys have failed and refused to either provide new collateral or pay the note. Plaintiff alleges that Leviathan owned the following property interests: (1) 13% of the “Mountain View” property, (2) 48% of the “Oakbank” property and (3) 32% of two lots in Fontana, and that these properties were held jointly in ownership with Garvey-Kent, a partnership controlled by The Garveys. Plaintiff alleges that The Garveys collected all the rents and security deposits for such properties, used these monies to fund other corporations owned by The Garveys or for their own interests, and failed to account to Leviathan. Plaintiff alleges that The Garveys refinanced the Mountain View and Oakbank properties without Plaintiff’s consent for a total amount of $430,000.00. Plaintiff alleges that The Garveys also convinced Plaintiff to purchase three model homes in a development by Crestwood Corporation, using his personal credit to do so. Plaintiff alleges that The Garveys collected and kept the rents from such properties, failed to pay the mortgages and retained the income for their own benefit while allowing the properties to be foreclosed upon. Plaintiff alleges that The Garveys have terminated bonus or dividend payments and profit sharing to Plaintiff.

On March 29, 2019, Plaintiff filed a Third Amended Complaint (“TAC”), asserting causes of action against The Garveys, Jameson, Leviathan and Does 1-50 for:

Breach of Fiduciary Duty [v. The Garveys only]

Breach of Contract [noted as dismissed]

Breach of Fiduciary Duty [v. The Garveys only]

Fraud [noted as demurrer sustained without leave to amend]

Common Counts Money Had and Received

Accounting

On April 3, 2019, Plaintiff filed a “Notice of Errata” as to the TAC re: Leviathan. On May 7, 2019, “Judgment of Dismissal with Prejudice After Sustaining of Demurrer to Second Amended Complaint without Leave to Amend” was filed as to Leviathan.

On August 22, 2019, an “Order Sustaining Demurrer of Defendant Jameson, Inc. to Third Amended Complaint Without Leave to Amend” was filed.

A Case Management Conference is set for September 17, 2019.

Legal Standard

CCP § 438 states, in relevant part, that “[w]here a motion for judgment on the pleadings is granted with leave to amend, the court shall not enter a judgment in favor of a party until the following proceedings are had: (A) If an amended pleading is filed and the moving party contends that pleading is filed after the time to file an amended pleading has expired or that the pleading is in violation of the court’s prior ruling on the motion, then that party shall move to strike the pleading and enter judgment in its favor.” (CCP § 438(i)(1)(A).)

Discussion

The Garveys move the court, per CCP § 438(i)(1)(A), for an order striking the TAC, on the basis that the TAC was filed by Plaintiff “in deliberate violation and disobedience to the court’s March 12, 2019 order. . .” The Garveys argue that Plaintiff “vastly exceeded the scope of the leave to amend by: [1] augmenting the factual allegations in the ‘preliminary’ factual allegations section of the TAC, even though leave to amend the previous ‘preliminary’ factual allegations was neither granted nor overruled nor stricken by the court; [2] substantially changing the First and Third Causes of Action in the TAC. . . even though the court overruled the demurrer to both of those causes of action in the SAC; [3] including allegations and claims for punitive damages even though those claims were expressly stricken by the Court in its March 12, 2019 Order; [and 4] including Defendant Leviathan Industries as a party to the TAC. . .”

On March 12, 2019, the court granted Plaintiff’s oral motion to dismiss the second cause of action in the Second Amended Complaint (“SAC”) against The Garveys. The court also overruled The Garveys demurrer to the SAC as to the first, third and sixth causes of action, sustained the demurrer without leave to amend as to the fourth cause of action, and sustained the demurrer with 20 days leave to amend as to the fifth cause of action. The court also granted The Garveys motion as to the prayer for punitive damages and removal.

The court determines that CCP § 438(i)(1)(A) is not applicable, inasmuch as the TAC was filed in response to the court’s March 12, 2019 order on a demurrer/motion to strike, not on a motion for judgment on the pleadings. The motion, then, is DENIED on this basis. With that said., the court may, pursuant to CCP § 436, “at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading. (b) Strike out all or any part or any pleading not drawn or filed on conformity with the laws of this state, a court rule, or an order of the court.”

“Generally, where a court grants leave to amend after sustaining a demurrer, the scope of permissible amendment is limited to the cause(s) of action to which the demurrer has been sustained.” (Weil & Brown, et al., CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2019) § 6:635.5; People v. Clausen (1967) 248 Cal.App.2d 770, 785-786 [“[S]uch granting of leave to amend must be construed as permission to the pleader to amend the cause of action which he pleaded in the pleading to which the demurrer has been sustained”].) The court’s granting of leave to amend the fifth cause of action would extend to amending/clarifying the Statement of Facts as needed to provide sufficient support for the fifth cause of action.

A reading of the TAC, however, reflects that Plaintiff has, in fact, altered the first and third causes of action, included Leviathan as a defendant (although Plaintiff subsequently filed a Notice of Errata re same) and included allegations and claims for punitive damages.

The court elects to strike the TAC on its own motion, but will give Plaintiff 20 days leave to amend to file a Fourth Amended Complaint in conformity with the court’s March 12, 2019 order.