Case Number: BC696206 Hearing Date: October 16, 2018 Dept: 20

Tentative Ruling

Judge Dalila C. Lyons

Department 20

Hearing Date: Tuesday, October 16, 2018

Case Name: Emsallem-Grode v. Tate, et al.

Case No.: BC696206

Motion: Demurrer to First Amended Complaint; Strike Portions of the First Amended Complaint

Moving Party: Defendants Christopher Tate, Bailey 44, LLC, and Norwest Venture Partners XI, LP

Responding Party: Plaintiffs Ivan Liang and Liang & Lee Holding, Inc.

Ruling: Defendants Christopher Tate, Bailey 44, LLC, and Norwest Venture Partners XI, LP’s demurrer to the First Cause of Action is OVERRULED as asserted against Bailey 44, LLC.

Defendants Christopher Tate, Bailey 44, LLC, and Norwest Venture Partners XI, LP’s demurrer to the First Cause of Action is SUSTAINED WITHOUT LEAVE TO AMEND as asserted against Norwest Venture Partners XI, LP.

Defendants Christopher Tate, Bailey 44, LLC, and Norwest Venture Partners XI, LP’s demurrer to the Second through Seventh Causes of Action is OVERRULED.

Defendants Christopher Tate, Bailey 44, LLC, and Norwest Venture Partners XI, LP’s motion to strike is DENIED.

Response shall be filed within 10 days of this order.

Moving party to give notice.

BACKGROUND

On February 26, 2018, the Complaint was filed. On July 25, 2018, Plaintiff Ruthy Emsallem-Grode (“Plaintiff” or “Emsallem-Grode”), an individual and on behalf of herself and derivatively on behalf of Sister Sam, LLC (“Sister Sam”) and Bailey 44, LLC (“Bailey 44”), filed the Complaint against Defendants Christopher Tate (“Tate”) and Norwest Venture Partners XI LP (“NVP”) (collectively “Defendants”), and Nominal Defendants Sister Sam and Bailey 44 (collectively “Nominal Defendants”), and Does 1 through 100 for (1) breach of purchase and sale agreement; (2) breach of the restated LLC agreement of Bailey 44; (3) breach of fiduciary duties; (4) intentional misrepresentation; (5) intentional concealment; (6) civil conspiracy; and (7) accounting.

Plaintiff states the case arises out of financial and strategic scheming by Defendants to prop up the appearance of Bailey 44, a declining company. Plaintiff alleges Tate and NVP maintain full control over the operations of Bailey 44 through their control of the majority of seats on the Board of Managers, Tate’s position as CEO, and their control of a majority of Bailey 44’s equity. Plaintiff alleges she is the co-founder of the Bailey 44 brand, was CEO until early 2015, and maintains a 12.5% interest in Bailey 44 through her interest in Sister Sam because Plaintiff owns 33% of Sister Sam, which owns a 37.5% interest of Bailey 44.

Plaintiff alleges Defendants have schemed to delay the recognition of losses, failed to provide timely and accurate information, misstated financial statements, hid returns, engaged in risky strategies to display a false appearance of growth, and more that has negatively impacted Bailey 44’s profitability and brand value. Plaintiff alleges these steps were taken to appease NVP’s partners, shareholders, and investors because NVP is a private equity fund and likely faced pressure to show growth and permitted Defendants to sell or merge the brand with an unwitting buyer. Plaintiff alleges she has been misled about the brand she helped to create and Defendants destroyed her remaining equity, diminished Bailey 44’s brand name, and ran the company into the ground. Plaintiff alleges when NVP initially purchased one-half of Bailey 44’s equity that Bailey 44 was thriving under Plaintiff and her business partner, Shelli Segal (“Segal”), and that Bailey 44 achieved high sales without increasing costs to have high margins and robust profits. But Plaintiff alleges it was never the intent of Defendants to maintain the business and that Defendants were inattentive to Bailey 44’s operations and failed to act in good faith to permit the business to succeed and instead Defendants focused on a short-term scheme. And Plaintiff alleges Defendants have sought to insulate Bailey 44 from any oversight to cover up their conduct and have violated contractual agreements by failing to provide timely and accurate financial statements, knowingly provided false financial statements, and have otherwise acted in bad faith.

MOVING PARTY POSITION

Defendants demur to the First Amended Complaint (“FAC”) on the grounds that:

the First Cause of Action for Breach of Purchase and Sale Agreement and Second Cause of Action for Breach of the Restated LLC Agreement of Bailey 44 fail because (a) Plaintiff and Sister Sam released any right to these causes of action on December 01, 2015 in the Common Unit Purchase Agreement (“CUPA”); and (b) Plaintiff cannot assert the claims derivatively on behalf of Sister Sam;

the Third Cause of Action for Breach of Fiduciary Duties fails because (a) Plaintiff and Sister Sam released any right to this cause of action by executing the CUPA; (b) Plaintiff has not been a member of Bailey 44 since December 01, 2015 and therefore cannot assert the claim derivatively on behalf of Bailey 44; and (c) Tate does not and has not owed Plaintiff any fiduciary duty since December 01, 2015;

the Fourth Cause of Action for Intentional Misrepresentation and Fifth Cause of Action for Intentional Concealment fail because (a) Plaintiff and Sister Sam released any right to these causes of action by executing the CUPA; (b) Plaintiff cannot assert the claims derivatively on behalf of Sister Sam; and (c) the claims are insufficiently alleged;

the Sixth Cause of Action for Civil Conspiracy fails because (a) there is no such claim under California law; (b) Plaintiff and Sister Sam released any right to this cause of action by executing the CUPA; and (c) Plaintiff cannot assert the claim derivatively on behalf of Sister Sam; and

the Seventh Cause of Action for Accounting fails because (a) Plaintiff lacks any relationship to Bailey 44 to entitle her to this remedy; (b) Plaintiff and Sister Sam released any right to this cause of action by executing the CUPA; and (c) Plaintiff cannot assert the claim derivatively on behalf of Sister Sam.

Defendant moves to strike portion of the FAC on the grounds Plaintiff is alleging claims based on conduct she voluntarily agreed to release and any conduct prior to December 01, 2015 has been released.

OPPOSITION

Plaintiff opposes the demurrer on the grounds that the FAC is properly alleged, that the CUPA does not bar Plaintiff’s claims, and that the derivative claims are properly asserted on behalf of Sister Sam and Bailey 44.

Plaintiff opposes the motion to strike on the grounds that even if not recoverable, the allegations of conduct prior to the CUPA is relevant to the action.

REPLY

Due 10.09.2018.

ANALYSIS

I. Demurrer

A demurrer for sufficiency tests whether the complaint states a cause of action. Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747. When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994; Weil & Brown, Civ. Pro. Before Trial (The Rutter Group 2011) ¶7:8. “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed (CCP §§ 430.30, 430.70). The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” Hahn 147 Cal.App.4th at 747. But courts do not have to ignore or turn a blind eye to allegations that are inconsistent with attached exhibits or to facts which are judicially noticed. Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604; Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400. A complaint will be upheld against a demurrer if it pleads facts sufficient to place the defendant on notice of the issues sufficient to enable the defendant to prepare a defense. Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 549-50.

A. Release of Any Causes of Action based upon Execution on December 01, 2015 of the Common Unit Purchase Agreement (“CUPA”)

Release of the Company. Subject to the final payment of all wages and all other amounts due to [Plaintiff] in connection with her employment by [Bailey 44] (subject to the notice and cure period set forth in Section 17), each Seller hereby and forever generally and completely releases and discharges [Bailey 44] and its Related Parties[1], and each of their respective successors and assigns from any and all claims, liabilities, obligations and demands of every kind and nature, in law, equity or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, and in particular of and from all claims and demands of every kind and nature, known and unknown, suspected and unsuspected, disclosed and undisclosed, that arose out of or are in any way related to the events, acts, conduct or omission occurring prior to the date of this Agreement. Each Seller acknowledges that it has read and understands (or has been fully advised by its attorney of) the contents of Section 1542 of the Civil Code of the State of California, which provides as follows:

“Section 1542. (General Release – Claims Extinguished). A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

Each Seller hereby expressly waives and relinquishes all rights and benefits under that section any law or legal principle of similar effect in any jurisdiction with respect to the release granted in this Agreement. Notwithstanding the foregoing, neither Shelli Segal nor [Plaintiff] are releasing Sister Sam or each other from any claims, liabilities, obligations or demands pursuant to this Section or otherwise.

FAC Exh. F (CUPA § 10(a)) (emphasis in original).

The CUPA provides it is “governed by and construed in accordance with the laws of the State of Delaware.” FAC Exh. F (CUPA § 15).

Here, the CUPA resulted in transfer of Plaintiff’s direct holdings in Bailey 44 and half of her holdings in Sister Sam in exchange for payment. FAC ¶ 56. Plaintiff transitioned to a role of “member and advisor” to Bailey 44. FAC ¶ 57, Exh. F (CUPA Exh. L) And the CUPA provides that “Sister Sam shall continue to have all of the applicable rights…set forth in the Company’s Restated Limited Liability Company Agreement.” Defendants argue all of the claims re based on events occurring prior to December 01, 2015, the date the CUPA was executed, or are directly related to events that occurred prior to December 01, 2015. But the FAC is also based on conduct that occurred after December 01, 2015. FAC ¶¶ 40, 65-78, 89, 109. It is not apparent on the face of the FAC that such conduct is “related to” events and conduct solely occurring prior to December 01, 2015. “[A] demurrer does not lie to a part of a cause of action.” Grieves v. Superior Court (1984) 157 Cal.App.3d 159, 163 (emphasis in original); Fire Ins. Exchange v. Superior Court (2004) 116 Cal.App.4th 446, 452 (“a general demurrer does not lie as to a portion of a cause of action, and if any part of a cause of action is properly pleaded, the demurrer will be overruled”).

Further, while the CUPA provides it is governed and construed in accordance with Delaware law, given the specific reference to California Civil Code § 1542 it is reasonable to interpret, at the very least, that California law on general releases to apply to the CUPA. “All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.” California Civil Code § 1668; Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1587 n. 12 (the provision prohibits contracts releasing liability for future torts). Similarly, the Court concludes a contract cannot release a party’s ongoing or continuing torts.

Finally, Defendants present no authority that under Delaware law a contract can release a party from future torts. See Blattman v. Siebel (D. Del. Jun. 07, 2018) 2018 U.S. Dist. LEXIS 95847 *4; UniSuper Ltd. v. News Corp. (Del. Ch. 2006) 898 A.2d 344, 347 (general releases are construed to usually not bar claims that accrue after the date of the release’s execution).[2]

Accordingly, Defendants’ demurrer on the grounds the FAC is barred by the general release of the CUPA is OVERRULED.

B. Right of Plaintiff to Assert Any Claims Derivatively on Behalf of Sister Sam

No action shall be instituted or maintained in right of any domestic or foreign limited liability company by any member of the limited liability company unless both of the following conditions exist:

(1) The plaintiff alleges in the complaint that the plaintiff was a member of record, or beneficiary, at the time of the transaction or any part of the transaction of which the plaintiff complains, or that the plaintiff’s interest later devolved upon the plaintiff by operation of law from a member who was a member at the time of the transaction or any part of the transaction complained of. Any member who does not meet these requirements may nevertheless be allowed in the discretion of the court to maintain the action on a preliminary showing to and determination by the court, by motion and after a hearing at which the court shall consider any evidence, by affidavit or testimony, as it deems material, of all of the following:

(A) There is a strong prima facie case in favor of the claim asserted on behalf of the limited liability company.

(B) No other similar action has been or is likely to be instituted.

(C) The plaintiff acquired the interest before there was disclosure to the public or to the plaintiff of the wrongdoing of which plaintiff complains.

(D) Unless the action can be maintained, the defendant may retain a gain derived from defendant’s willful breach of a fiduciary duty.

(E) The requested relief will not result in unjust enrichment of the limited liability company or any member of the limited liability company.

(2) The plaintiff alleges in the complaint with particularity the plaintiff’s efforts to secure from the managers the action the plaintiff desires or the reasons for not making that effort, and alleges further that the plaintiff has either informed the limited liability company or the managers in writing of the ultimate facts of each cause of action against each defendant or delivered to the limited liability company or the managers a true copy of the complaint that the plaintiff proposes to file.

Corp. Code § 17709.02(a)(1)-(2).

When the matter complained of is an instance in which “(1) the business decision complained of was made by the board, the majority of whose members were no longer part of the directorate when the suit was filed; (2) the matter complained of was not a board business decision; or (3) the challenged decision was made by the board of a different corporation” the Court determines whether a derivative action can be brought by assessing “whether the board that would be addressing the demand can impartially consider its merits without being influenced by improper considerations.” Bader v. Anderson (2009) 179 Cal.App.4th 775, 791. The Court looks to “whether or not the particularized factual allegations of a derivative stockholder complaint create a reasonable doubt that, as of the time the complaint is filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand.” Id. at 791-92 quoting Rales v. Blasband (Del. 1993) 634 A.2d 927, 934.

“A director will be deemed not to be disinterested if the facts alleged demonstrate a potential personal benefit or detriment to the director as a result of the decision. Id. at 792. “The personal benefit must arise out of the transaction being challenged” and a showing that a director may not be disinterested is not made via general allegations.” Id. “But where there is a showing that a director is not disinterested, and the transaction has not been approved by a majority of directors, the business judgment rule does not come into play; demand futility is established.” Id.

“The derivative plaintiff seeking demand excusal based upon a director’s lack of independence must allege specific facts that cast doubt as to whether the director’s decision is based on the corporate merits of the subject before the board, rather than extraneous considerations or influences.” Id. “Such lack of independence may be demonstrated by specific facts showing that the director is beholden to an interested director or officer, or so under their influence that their discretion would be sterilized.” Id. “And in this context, simple allegations, of themselves, that a director has a personal friendship or outside business relationship with the controlling person will not suffice to cast a reasonable doubt as to the director’s independence.” Id.

Here, the Sister Sam Operating Agreement provides that Plaintiff and Shelli Segal (“Segal”) are the only two members and neither can take action on behalf of Sister Sam without agreement of the other member. FAC Exh. B (§§ 4.1 and 4.2). Plaintiff alleges sufficient facts to proceed derivatively on behalf of Sister Sam and establishes demand futility. Plaintiff alleges she is a minority unit holder of Sister Sam and cannot by herself pursue Sister Sam’s rights. FAC ¶ 79. But the FAC alleges Segal is unwilling to bring suit against Defendants because Segal is employed by Bailey 44 and is a Board Member of Bailey 44, and thus she has an irreconcilable conflict of interest and despite Segal being aware of Defendants’ misconduct. FAC ¶ 80. Such allegations are sufficient to raise a reasonable doubt as to Segal’s lack of independence and extraneous considerations or influences.

Accordingly, the demurrer on the grounds Plaintiff cannot sue derivatively on behalf of Sister Sam is OVERRULED.

C. First Cause of Action for Breach of Purchase and Sale Agreement (“PSA”) and Second Cause of Action for Breach of the Restated LLC Agreement of Bailey 44

Defendants argue in addition to the reasons stated above, NVP cannot be liable for such claims because (1) NVP owes no duty to provide information under the PSA and any access to Bailey 44’s information is an obligation of Bailey 44 (FAC Exh. C (§ 8.3(a))); and (2) NVP owes no duty to audit Bailey 44 under the Restated LLC Agreement (FAC Exh. D (§§ 5.3, 5.6, 9.1-9.4)). And Defendants argue Plaintiff, as a non-member, has no right to financial records, information, or records from any transaction. Plaintiff concedes that NVP is not required under the PSA or Restated LLC Agreement to provide such information. Nor can NVP be liable on a conspiracy theory for breach of a contractual duty it does not owe. A claim for civil conspiracy does not arise if the alleged conspirator, while a participant in the agreement underlying the injury, was not personally bound by the duty violated by the alleged wrongdoing and was acting only as an agent or employee of the party that had the duty. Doctors’ Co. v. Superior Court (1989) 49 Cal.3d 39, 44.

Accordingly, as to NVP the demurrer to the First and Second Cause of Action is SUSTAINED WITHOUT LEAVE TO AMEND.

D. Third Cause of Action for Breach of Fiduciary Duty

“The elements of a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.” Tribeca Companies, LLC v. First American Title Insurance Company (2015) 239 Cal.App.4th 1088, 1114. See also York Linings v. Roach (Del. Ch. 1999) 1999 Del. Ch. LEXIS 160 at *5 (elements of breach of fiduciary duty are the existence of a fiduciary duty and that the fiduciary breached that duty).

Here, Plaintiff, stepping in the shoes of Sister Sam, can sue derivatively on behalf of Bailey 44. See Sagarra Inversiones, S.L. v. Cementos Portland Valderrivas, S.A. (Del. 2011) 34 A.3d 1074, 1079-80; Rales v. Blasband (Del. 1993) 634 A.2d 927, 932. As the Court has found Plaintiff can sue derivatively on behalf of Sister Sam, Plaintiff can also step into the shoes of Sister Sam to sue derivatively on behalf of Bailey 44.

Accordingly, the demurrer to the Third Cause of Action is OVERRULED.

E. Fourth Cause of Action for Intentional Misrepresentation and Fifth Cause of Action for Intentional Concealment

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1060. The elements of false promise are (a) a promise by the defendant (b) made without an intent to perform and (c) made with the intent to induce reliance by the plaintiff, followed by (d) reasonable reliance by the plaintiff that results in (e) injury to the plaintiff. Civil Code §§ 1572, 1710; Lazar v. Superior Court (1996) 12 Cal.4th 631, 638. Each element of fraud must be pled with particularity which means pleading the who, where, when, what, and how. Lazar 12 Cal.4th at 645.

“The required elements for fraudulent concealment are (1) concealment or suppression of a material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff; (3) the defendant intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) plaintiff sustained damage as a result of the concealment or suppression of the fact.” Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162. Absent a fiduciary duty, there are at least three instances in which a cause of action for non-disclosure of material facts may arise: “(1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff”. Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294.

As it is a species of fraud and deceit, concealment must be pled with specificity. Lazar v. Superior Court (1996) 12 Cal.4th 631, 645 (specificity mean pleading the who, where, when, what, and how). But this rule for fraud by omission, unlike fraud by an affirmative misrepresentation, must be applied differently in the case of non-disclosure because it is difficult to allege “who” or “how” or “by what means” something was not disclosed or “when” or “where” a statement was not made. Alfaro v. Community Housing Imp. System & Planning Ass’n, Inc. (2009) 171 Cal.App.4th 1356, 1384. Because of the nature of such fraud and the fact such facts supporting concealment are more likely to be known by the defendant, less particularity is required. Id.

Here, the Fourth and Fifth Causes of Action are properly alleged. FAC ¶¶ 23-24, 36, 46, 61, 63, 65-78. Plaintiff is not required to repeat each specific instance of fraud alleged in the financial statements and any such clarity can be obtained in the discovery process. See Committee On Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 217 superseded by statute on other grounds as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.

Accordingly, the demurrer to Fourth and Fifth Causes of Action is OVERRULED.

F. Sixth Cause of Action for Civil Conspiracy

Conspiracy is not an independent cause of action, “but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors.” Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-11.[3]

“The elements of a civil conspiracy are (1) the formation and operation of the conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) the damage resulting.” Mosier v. Southern California Physicians Insurance Exchange (1998) 63 Cal.App.4th 1022, 1048. The conspiring defendants must have “actual knowledge that a tort is planned and concur in the tortious scheme with knowledge of its unlawful purpose.” Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1581. While the allegations of the formation and operation of the conspiracy can be made generally, there must be specific allegations of the wrongful acts done pursuant to it and the resulting damage. Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 316-17 superseded by statute on other grounds as stated in Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 781 n. 18.[4]

Here, Defendants demur is based solely on the grounds that there is no claim in California for civil conspiracy. But as established above, California recognizes liability for civil conspiracy.

Accordingly, the demurrer to the Sixth Cause of Action is OVERRUELD.

G. Seventh Cause of Action for Accounting

The elements of a cause of action for accounting are (1) the existence of a relationship that requires an accounting, such as a fiduciary, or accounts so complicated an ordinary action demanding a fixed sum is impracticable; and (2) some unliquidated and unascertained balance is owed to the plaintiff. Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179. But an action for accounting is not available when the plaintiff alleges the right to recover a certain sum or a sum that can be made certain by calculation. Id.

Here, based upon Plaintiff’s claims for breach of fiduciary duty, intentional misrepresentation, and concealment, Plaintiff has alleged a basis to state a cause of action for accounting.

Accordingly, the demurrer to the Seventh Cause of Action is OVERRULED.

II. Motion to Strike

Motions to strike are used to reach defects or objections to pleadings that are not challengeable by demurrer (i.e., words, phrases, prayer for damages, etc.). CCP §§ 435, 436 & 437. A party may file a motion to strike in whole or in part within the time allowed to respond to a pleading, however, if a party serves and files a notice of motion to strike without demurring to the complaint, the time to answer is extended. CCP §§ 435(b)(1), 435(c).

A motion to strike lies only where the pleading has irrelevant, false or improper matter, or has not been drawn or filed in conformity with laws. CCP § 436. The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. CCP § 437; Weil & Brown, Civ. Pro. Before Trial (The Rutter Group 2011) ¶7:168.

Here, Defendants seek to strike from the FAC any claims based on events prior to December 01, 2015 due to the language of the release in the CUPA discussed above. But even if they cannot form the basis of recovery, such allegations are relevant to Plaintiff’s claims of post-CUPA conduct and can show knowledge of wrongdoing, reliance, damages, and other essential elements of Plaintiff’s claims. There is no basis to conclude based upon the language of the CUPA that it is a settlement of legal claims and the CUPA makes no reference to it being a legal settlement. And as discussed above, actions that occurred prior to the CUPA, but continued after the CUPA, are not barred on their face by the allegations of the FAC or the CUPA. Nor, as discussed above, can the CUPA cover claims asserted derivatively on behalf of Bailey 44.

Accordingly, Defendants’ motion to strike is DENIED.

[1] Related Parties means “a party’s current and former directors, officers, partners, employees, attorneys, agents, successors, assigns, members, owners, representatives, predecessors, parents, affiliates, associates and subsidiaries and each of their respective affiliates.” FAC Exh. F (§ 7(d)).

[2] And as Plaintiff notes, the CUPA cannot bar derivative claims on behalf of Bailey 44.

[3] “Under a conspiracy theory of recovery, liability depends on the actual commission of a tort.” Navarrete v. Meyer (2015) 237 Cal.App.4th 1276, 1291. The threshold requirement for a civil conspiracy is the formation of a conspiracy by two or more persons who have agreed on a common plan to commit a tortious act. Kidron 40 Cal.App.4th at 1581. The coconspirators must have “actual knowledge that a tort is planned and concur in the tortious scheme with knowledge of its unlawful purpose.” Id. Thus, a plaintiff must be able to allege the underlying tort which the defendants allegedly conspired to commit. Id. at 1581-82; Zumbrun v. University of Southern California (1972) 25 Cal.App.3d 1, 12 (the allegations must show something that without the conspiracy would give rise to a cause of action).

[4] To state a theory of recovery based upon conspiracy, “the complaint among other things must allege a wrongful act or acts done pursuant to the conspiracy.” Younan v. Equifax, Inc. (1980) 111 Cal.App.3d 498, 511. “Although the conspiracy (agreement) is ordinarily not actionable by itself, the cause of action arises out of some wrongful act committed by one or more of the conspirators, and if such a wrongful act is set forth the conspiracy averment is unnecessary to the statement of a cause of action.” Id. “The plaintiff may therefore state a cause of action against several persons by simply alleging that the named defendants committed the acts.” Id.