Case Number: BC490805 Hearing Date: May 01, 2014 Dept: 34

Moving Party: Defendants John A. Tkach and the Law Offices of John A. Tkach (collectively “Tkach”); defendants Interpols Network Inc., Peter Kim, Chong Moon Lee, and Ambex Venture Group LLC (collectively “Interpols”)

Resp. Party: Plaintiffs Sa Young Hong, Jung Ho Hong, and Sang Pil Nam (“plaintiffs”)

The demurrer of the Interpols defendants is OVERRULED as to the first, fifth, sixth, seventh, and ninth causes of action.

The demurrer of Peter Kim is OVERRULED.

The demurrer of the Interpols defendants other than Kim is SUSTAINED as to the second, third, fourth and eight causes of action.

The Interpols defendants’ motion to strike is GRANTED as to the attorneys fees request of ¶ 132 and is MOOT as to ¶¶ 87, 106 and 146. The Interpols defendants’ motion to strike is otherwise DENIED.

The Tkach defendants’ demurrer to the tenth, eleventh, and twelfth causes of action is SUSTAINED.

PRELIMINARY COMMENTS:

Much of defendants’ reply brief is devoted to the proposition that since plaintiffs did not oppose the demurrer to various causes of action, the court must sustain the demurrer. This is incorrect. Even if a demurrer is unopposed, it is within the court’s discretion whether to sustain or overrule the demurrer, and if it is sustained, whether to sustain it with or without leave to amend. This is because a general demurrer may be upheld “only if the complaint fails to state a cause of action under any possible legal theory.” (Sheehan v. San Francisco 49ers, Ltd. (2009) 45 Cal.4th 992, 998.)

BACKGROUND:

Plaintiffs commenced this action on 8/22/12. Plaintiffs filed a second amended complaint on 9/22/13 against defendants for: (1) breach of fiduciary duty; (2) actual and constructive fraud; (3) securities fraud; (4) violation of Corporations Code section 25504.1; (5) violation of Bus. & Prof. Code sections 17200 and 17500; (6) accounting; (7) inspection of books and records; (8) elder abuse; (9) IIED; (10) malpractice; (11) breach of fiduciary duty; and (12) breach of contract. The action pertains to privately held stock in defendant Interpols Network Inc., of which plaintiffs are minority shareholders. Plaintiffs assert that the defendants, officers, directors, and controlling shareholders of Interpols, breached their fiduciary duties to plaintiffs. The first, second, third, fourth, fifth, sixth, seventh, eighth and ninth causes of action are alleged against the Interpols defendants. The tenth, eleventh, and twelfth causes of action are alleged against the Tkach defendants.

ANALYSIS:
INTERPOLS’ DEMURRER

The Interpols defendants demur to the first through ninth causes of action on the grounds that they fail to allege sufficient facts and are uncertain.

The Demurrer on the Grounds of Uncertainty is OVERRULED.

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; Weil & Brown, Civ. Pro. Before Trial (The Rutter Group 2008) ¶ 7:85.) “Demurrer for uncertainty will be sustained only where the complaint is so bad that the defendant cannot reasonably respond; i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her.” (Weil & Brown, ¶ 7:85 [citing Khoury, 14 Cal.App.4th at p. 616].)

The SAC is not so uncertain that defendants cannot reasonably respond. To the extent that there is some confusion as to the allegations, this may be clarified during the discovery process. To the extent that some of the paragraphs do not support the claims, such paragraphs should have more properly been addressed in a motion to strike.

Accordingly, Interpols’s demurrer on the ground of uncertainty is OVERRULED.

First 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.” (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.) Plaintiff alleges that the Interpols defendants owed fiduciary duties to plaintiffs, who were minority shareholders of Interpols. (SAC ¶¶ 7-11, 52.) Plaintiffs allege that defendants, and each of them, breached their fiduciary duties by acting to dilute plaintiffs’ shares by issuing shares to non-existent shareholders, failing to cancel defunct shares, and issuing shares for different prices at the same time. (Id., ¶¶ 24-33, 53-54, 57.) Plaintiffs allege they were damaged as a result. (Id., ¶¶ 59, 61.)

Defendants argue that the business judgment rule bars plaintiffs’ claims against the directors. Pursuant to Corporations Code section 309,

(a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. [¶] (b) In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following . . . [¶] (2) Counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence.

(Corp. Code, § 309.)

“The business judgment rule sets up a presumption that directors’ decisions are made in good faith and are based upon sound and informed business judgment.” (Lee v. Interinsurance Exchange (1996) 50 Cal.App.4th 694, 715 [italics in original].) “[I]t is the very essence of the business judgment rule that, where a reasonable business purpose is asserted, the motives of directors will not be scrutinized, absent a basis for overcoming the presumption of good faith embodied by the business judgment rule.” (Id. at p. 717.) “[T]he business judgment rule does not shield actions taken without reasonable inquiry, with improper motives, or as a result of a conflict of interest.” (Id. at p. 715.)

“Under this rule, courts will not review directors’ business decisions, or hold directors liable for errors or mistakes in judgment, so long as they were: [¶] Disinterested and independent; [¶] Acting in good faith; and[¶] Reasonably diligent in informing themselves of the facts.” (Friedman, et al., Cal. Prac. Guide: Corporations (The Rutter Group 2012) ¶ 6:245.) “Where a director has (directly or indirectly) a personal interest in a corporate decision, his or her judgment on the matter is not entitled to judicial deference under the rule.” (Id., ¶ 6:245.3 [italics in original].) “Directors may not ‘close their eyes’ to what is going on around them and claim to have been acting responsibly and in good faith. They owe a duty to make such inquiry as a reasonable person would make as to matters inviting such inquiry.” (Id., ¶ 6:246 [italics in original].)

[A] plaintiff must allege sufficient facts to establish these exceptions. To do so, more is needed than “conclusory allegations of improper motives and conflict of interest. Neither is it sufficient to generally allege the failure to conduct an active investigation, in the absence of (1) allegations of facts which would reasonably call for such an investigation, or (2) allegations of facts which would have been discovered by a reasonable investigation and would have been material to the questioned exercise of business judgment.” [Citation.] In most cases, “the presumption created by the business judgment rule can be rebutted only by affirmative allegations of facts which, if proven, would establish fraud, bad faith, overreaching or an unreasonable failure to investigate material facts. [Citation.] Interference with the discretion of directors is not warranted in doubtful cases.”

(Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1045-1046.)

Plaintiffs allege that defendant Kim sold shares to his family and friends at discounted and fabricated prices. (SAC ¶¶ 25-26.) Plaintiffs allege that defendants amended the articles of incorporation to provide preferential treatment to Ambex, without informing shareholders of the meeting to amend the articles. (Id., ¶¶ 27-30.) These facts, if proven, could establish fraud, bad faith, or overreaching. Therefore, plaintiffs have alleged sufficient facts to overcome the presumption of the business judgment rule.

Accordingly, the Interpols defendants’ demurrer to the first cause of action is OVERRULED.

Second Cause of Action for Constructive Fraud by Concealment

“ ‘[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.’ ” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 748.)

Fraud and misrepresentation must be specifically pleaded. (Scafidi v. Western Loan & Bldg. Co. (1946) 72 Cal.App.2d 550.) Since allegations of fraud involve a serious attack on character, fairness to the defendant demands that he should receive the fullest possible details of the charge in order to prepare his defense. Accordingly, fraud must be specifically pleaded, such that: (a) General pleading of the legal conclusion of “fraud” is insufficient; the facts constituting the fraud must be alleged; and (b) Every element of the cause of action for fraud must be alleged in the proper manner (i.e., factually and specifically), and the policy of liberal construction of the pleadings will not ordinarily be invoked to sustain a pleading defective in any material respect. (Hall v. Department of Adoptions (1975) 47 Cal.App.3d 898, 904.)

“Consistent with the rule requiring specificity in pleading fraud, a complaint must state ultimate facts showing that the defendant intended or had reason to expect reliance by the plaintiff or the class of persons of which he is a member.” (Geernaert v. Mitchell (1995) 31 Cal.App.4th 601, 608.) A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

“[T]he requirement that ‘[f]raud must be pleaded with specificity’ applies equally to a cause of action for fraud and deceit based on concealment.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462.)

Plaintiffs allege that in 2000 Peter Kim, director and board member of Interpols, misrepresented the price of the shares. (See SAC ¶¶ 71-74.) Plaintiff alleges that defendants failed to disclose the existence of “ghost” shareholders that would dilute plaintiffs’ shares, and gave evasive responses when confronted by plaintiffs. (Id., ¶¶ 76-77, 79-84.) Plaintiffs fail to allege any particular facts as to this alleged concealment.

Plaintiff adequately alleges that defendant Kim engaged in constructive fraud, but not that of the other Interpols’ defendants. Defendants’ demurrer to the second cause of action is SUSTAINED as to all defendants except for Kim.

Third Cause of Action for Securities Fraud and Fourth Cause of Action for Aiding/Abetting

The third cause of action alleges that defendants violated Corporations Code sections 25401 (which prohibits persons from engaging in fraud in connection with the offer, sale, or purchase of a security) and 25402 (which prohibits insider trading). The fourth cause of action is based on Corporations Code section 25504.1, which imposes civil liability on “[a]ny person who materially assists in any violation of Section … 25401 … , with intent to deceive or defraud.”

Defendants cite to Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, for the proposition that, under section 25401, privity must exist between a plaintiff and defendant and liability only attaches to the actual seller of securities. (See Demurrer, p. 7:15-18.) The argument is not well-taken. The court in Apollo considered liability under section 25501, which “on its face requires privity between the plaintiff and defendant” and “attaches only to the actual seller of securities.” (See Apollo at p. 253-254.) Here, plaintiffs do not seek relief under section 25501; instead, they cite to section 25504.1. The court in Apollo recognized that section 25504.1 “imposes liability on any person who materially assists in a violation with intent to deceive or defraud.” (See id. at p. 253.)

Defendants also argue that plaintiffs fail to allege specific factual allegations as to how the defendants violated the statutes. Generally, a statutory cause of action must be pleaded with particularity. (Lopez v. Southern Cal. Rapid Trans. Dist. (1985) 40 Cal.3d 780, 795.) At most, plaintiff alleges that defendant Kim misrepresented the stock prices in 2000 and was evasive when plaintiffs requested information regarding unknown shareholders. (See SAC ¶¶ 95-96, 97, 98.) There are no specific factual allegations as to the misconduct of other defendants, only vague and conclusory assertions. (See, e.g., id., ¶ 110.)

As with the second cause of action, Plaintiff adequately alleges that defendant Kim engaged in securities fraud, but not that of the other Interpols’ defendants. Defendants’ demurrer to the third and fourth causes of action is SUSTAINED as to all defendants except for Kim.

Fifth Cause of Action under the UCL

California Business and Professions Code section 17200 permits recovery for “any unlawful, unfair, or fraudulent business act or practice.” (Bus. & Prof. Code § 17200.) To state a cause of action under Business and Professions Code section 17200, et seq., plaintiff must show: (1) a business practice; (2) that is unfair, unlawful, or fraudulent; and (3) authorized remedy. (Bus. & Prof. Code § 17200; Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 676.) “[O]nly plaintiffs who have suffered actual damage may pursue a private UCL action. A private plaintiff must make a twofold showing: he or she must demonstrate injury in fact and a loss of money or property caused by unfair competition.” (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1590.)

A claim under section 17200 may also lie where the defendant engaged in fraudulent conduct. “The term ‘fraudulent’ as used in section 17200 ‘does not refer to the common law tort of fraud but only requires a showing members of the public ” ‘are likely to be deceived.’ ” ‘ [Citations.][footnote omitted] Unless the challenged conduct ‘ “targets a particular disadvantaged or vulnerable group, it is judged by the effect it would have on a reasonable consumer.” ‘ [Citation.]” (Puentes v. Wells Fargo Home Mortg., Inc. (2008) 160 Cal.App.4th 638, 645.) Plaintiff alleges that defendants sold shares at different prices at the same time, gave preferential treatment to Ambex via an amendment to the articles without informing shareholders of the meeting when the articles were amended, and issued shares to “ghost” shareholders while failing to cancel defunct shares. (See SAC ¶¶ 24-33.) These allegations are sufficient to show that shareholders were likely to be deceived.

A claim under the unfair prong need not be based on unlawful conduct:

It is not necessary for a business practice to be “unlawful” in order to be subject to an action under the unfair competition law. “The ‘unfair’ standard, the second prong of [Business and Professions Code] section 17200, also provides an independent basis for relief. This standard is intentionally broad, thus allowing courts maximum discretion to prohibit new schemes to defraud. [Citation.] The test of whether a business practice is unfair ‘involves an examination of [that practice’s] impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer. In brief, the court must weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim…. [Citations.]’ [Citation.] In People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal.App.3d 509, 206 Cal.Rptr. 164, the court, acknowledging that the parameters of the term ‘unfair business practice’ had not been defined in a California case, applied guidelines adopted by the Federal Trade Commission and sanctioned by the United States Supreme Court in FTC v. Sperry & Hutchinson Co. (1972) 405 U.S. 233, 244 [92 S.Ct. 898, 905, 31 L.Ed.2d 170, 179].[footnote omitted] The court concluded that an ‘unfair’ business practice occurs when that practice ‘offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.’ [Citation.]” [Citation.]

“Examples of unfair business practices include: charging a higher than normal rate for copies of deposition transcripts (by a group of certified shorthand reporters), where the party receiving the original is being given an undisclosed discount as the result of an exclusive volume-discount contract with two insurance companies [citation]; placing unlawful or unenforceable terms in form contracts [citation]; asserting a contractual right one does not have [citations]; systematically breaching a form contract affecting many consumers [citation], or many producers [citation]; and imposing contract terms that make the debtor pay the collection costs [citation].” [Citation.]

(Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 718-719.) Defendants’ conduct of selling shares at different prices at the same time, giving preferential treatment to Ambex via an amendment to the articles without informing shareholders of the meeting when the articles were amended, and issuing shares to “ghost” shareholders while failing to cancel defunct shares could constitute conduct that offends an established public policy or conduct that is immoral, unethical, oppressive, unscrupulous, or substantially injurious to minority shareholders.

Accordingly, defendants’ demurrer to the fifth cause of action is OVERRULED.

Sixth Cause of Action for Accounting

“A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.) As stated above, plaintiffs allege a fiduciary relationship between the parties. (See SAC ¶ 120.) Plaintiffs request an accounting in order to assess the financial status of Interpols and to determine the accuracy of disclosures to plaintiffs, among other things. (Id., ¶ 124.) Plaintiffs allege that defendants refused to allow plaintiffs to inspect Interpols’s records. (Id., ¶¶ 38-43.) These facts are sufficient to support plaintiffs’ cause of action for an accounting.

Accordingly, defendants’ demurrer to the sixth cause of action is OVERRULED.

Seventh Cause of Action for Inspection of Books and Records

Corporations are required to keep adequate and correct books and records of account and other records. (See Corp. Code, § 1500.) Plaintiffs allege that in June 2012 they made a written request to inspect and copy Interpols’s records. (SAC ¶ 38.) Plaintiffs allege that Peter Kim failed and refused to provide the records for inspection of copies. (Id., ¶ 39.) Plaintiffs allege that counsel for Interpols improperly limited the records that were produced. (Id., ¶¶ 41-43.) Though plaintiffs do not allege any facts as to the other defendants regarding the failure to produce books and records for inspection, it is alleged that the other defendants are directors or majority shareholders of Interpols, and were agents, representatives, or conspirators who were acting within the course and scope of such agency, representation, or conspiracy. (See id., ¶¶ 8-11, 16.)

Accordingly, defendants’ demurrer to the seventh cause of action is OVERRULED.

Eighth Cause of Action for Elder Abuse

(a) “Financial abuse” of an elder or dependent adult occurs when a person or entity does any of the following:

(1) Takes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

(2) Assists in taking, secreting, appropriating, obtaining, or retaining real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

(3) Takes, secretes, appropriates, obtains, or retains, or assists in taking, secreting, appropriating, obtaining, or retaining, real or personal property of an elder or dependent adult by undue influence, as defined in Section 15610.70.

(b) A person or entity shall be deemed to have taken, secreted, appropriated, obtained, or retained property for a wrongful use if, among other things, the person or entity takes, secretes, appropriates, obtains, or retains the property and the person or entity knew or should have known that this conduct is likely to be harmful to the elder or dependent adult.

(c) For purposes of this section, a person or entity takes, secretes, appropriates, obtains, or retains real or personal property when an elder or dependent adult is deprived of any property right, including by means of an agreement, donative transfer, or testamentary bequest, regardless of whether the property is held directly or by a representative of an elder or dependent adult.

(Welf. & Inst. Code, § 15610.30.) Because this is a statutory claim, it must be alleged with particularity.

Plaintiffs allege that in July 1999 defendant Kim, on behalf of all defendants, solicited investments from plaintiffs by “making positive representations about Interpols’s business plans and prospects.” (SAC ¶ 134.) Plaintiffs fail to allege what was actually represented by Kim. Plaintiffs allege that they did not receive stock certificates or a stock purchase agreement until after they purchased shares, but it is unclear how this caused them harm. (See id., ¶¶ 135-137.) Plaintiffs repeat allegations that defendants devalued plaintiffs’ shares, but it is unclear how this constitutes a taking, appropriation, or retention of plaintiffs’ property. (See id., ¶¶ 139-141.)

Basically, plaintiffs are trying to turn a Breach of Fiduciary Duty and securities fraud case into an elder abuse action, simply by virtue of the fact that plaintiffs were older than 65 at the time they purchased the shares. The Elder Abuse statute does not stretch that far.

Defendants’ demurrer to the eight cause of action is SUSTAINED.

Ninth Cause of Action for IIED

The tort of intentional infliction of emotional distress is comprised of the following elements: (1) defendant’s extreme and outrageous conduct; (2) intention of causing emotional distress, or reckless disregard of the probability of causing emotional distress with knowledge of plaintiff’s presence when the conduct occurred; (3) the plaintiff suffered severe or extreme emotional distress; and (4) the conduct was the actual and proximate causation of the emotional distress. (CACI 1600; see also Christensen v. Superior Court (1991) 54 Cal.3d 868, 903.)

Outrageous conduct is not a bright-line determination but depends upon an intuitive appraisal of “values, sensitivity threshold, and standards of civility.” (Kovr-Tv, Inc. v. Superior Court (1994) 31 Cal.App.4th 1023, 1028.) “A defendant’s conduct is ‘outrageous’ when it is so ‘extreme as to exceed all bounds of that usually tolerated in a civilized community.’ And the defendant’s conduct must be ‘intended to inflict injury or engaged in with the realization that injury will result.'” (Hughes v. Pair (2009) 46 Cal.4th 1035, 1050-1051.)

Plaintiffs allege that defendant Kim sold shares to his family and friends at discounted and fabricated prices. (SAC ¶¶ 25-26.) Plaintiffs allege that defendants amended the articles of incorporation to provide preferential treatment to Ambex, without informing shareholders of the meeting to amend the articles. (Id., ¶¶ 27-30.) This could constitute extreme or outrageous conduct.

Accordingly, defendants’ demurrer to the ninth cause of action is OVERRULED.

INTERPOLS’ MOTION TO STRIKE

The Interpols defendants seek to strike paragraphs 62, 87, 106, 132, 146, and 155 from the complaint and the request for punitive damages in the prayer for relief. As an initial matter, paragraphs 87, 106, and 146 are contained in the second, third, and eighth causes of action. Because the Court sustains the demurrer to these causes of action, the request to strike these paragraphs is moot.

Punitive Damages

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.)

“An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.” (Civ. Code, § 3294(b).)

Plaintiffs allege that defendant Kim sold shares to his family and friends at discounted and fabricated prices. (SAC ¶¶ 25-26.) Plaintiffs allege that defendants amended the articles of incorporation to provide preferential treatment to Ambex, without informing shareholders of the meeting to amend the articles. (Id., ¶¶ 27-30.) Plaintiffs allege that defendants issued shares to “ghost” shareholders and failed to cancel defunct shares, which diluted plaintiffs’ shares. (Id., ¶¶ 31-33.) These allegations are sufficient to suggest that defendants engaged in despicable conduct with willful and conscious disregard of plaintiffs’ rights.

Accordingly, defendants’ request to strike the requests for punitive damages is DENIED.

Attorney’s Fees

“[A]s a general rule, attorney fees are not recoverable as costs unless they are authorized by statute or agreement.” (People ex rel. Dept. of Corporations v. Speedee Oil Change Systems, Inc. (2007) 147 Cal.App.4th 424, 429.) Courts may strike prayers for attorney fees where a party demonstrated no potential basis for their recovery. (Agricultural Ins. Co. v. Sup. Ct. (1999) 70 Cal.App.4th 385, 404.) However, unsupported attorneys fees allegations need not be stricken pursuant to a motion to strike, since later discovery may reveal a basis for their recovery. (Camenisch v. Sup. Ct. (1996) 44 Cal.App.4th 1689, 1699.)

Defendants seek to strike paragraph 132, which seeks attorney’s fees under Corporations Code section 17106(g). Defendants are correct that this section applies only to limited liability companies. Further, although not mentioned by defendants in their motion to strike, Corp. Code § 17106 has been repealed.

Accordingly, defendants’ request to strike the request for attorney’s fees in paragraph 132 is GRANTED.

TKACH’S DEMURRER

The Tkach defendants demur to the SAC on the grounds that it fails to allege sufficient facts and is uncertain. Only the tenth through twelfth causes of action are alleged against Tkach.

“In a legal malpractice action arising from a civil proceeding, the elements are (1) the duty of the attorney to use such skill, prudence, and diligence as members of his or her profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the breach and the resulting injury; and (4) actual loss or damage resulting from the attorney’s negligence.” (Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1199.) ” ‘Proof of legal malpractice requires proof not only of negligence by the lawyer but also of causation, a trial within a trial to establish that, but for the lawyer’s negligence, the client would have prevailed in the underlying action.’ [Citation.]” (Kurinij v. Hanna & Morton (1997) 55 Cal.App.4th 853, 864.)

Plaintiffs allege that they retained Tkach in March 2012 for legal advice as to claims against the controlling shareholders or other officers, directors, and control persons of Interpols for breach of their fiduciary duties. (SAC ¶ 46.) Plaintiffs allege that they turned over documents to Tkach. (Id., ¶ 47.) Tkach stated that he would send a demand letter and then file suit by April 2012. (Id., ¶ 48.) After the letter was sent, plaintiffs were dissatisfied and terminated the relationship before a suit was filed. (Id., ¶ 49.) Plaintiffs allege that the documents they gave to Tkach were utilized as leverage to settle another matter. (Id., ¶¶ 50, 161.) Plaintiffs allege that before Tkach represented them, he had represented Chen, a former Interpols employee, to exercise his stock option. (Id., ¶ 159.) Plaintiffs allege that Tkach failed to disclose this dual representation and did not obtain a signed waiver for the dual representation. (Id., ¶ 160.)

While plaintiffs clearly allege that Tkach “failed to follow ethical rules and applicable laws by disclosing confidential and privileged communications to a third party,” (Id., ¶ 161), it is unclear from these allegations how defendants caused plaintiff any damages. Plaintiffs do not allege that Tkach represented Chen at the same time as plaintiff, that this created a conflict of interest, or that it otherwise affected defendants’ representation of plaintiff. Plaintiffs allege that defendants used documents provided by plaintiffs in a settlement in another matter, but it is unclear how this affected plaintiffs. Plaintiffs mere assertion that they “have suffered monetary damaged . . . in an amount in excess of $100,000,” (Id., ¶ 162) is not sufficient.

The eleventh and twelfth causes of action are based on these same facts, and suffer from the same defect.

Accordingly, defendants’ demurrer to the tenth, eleventh, and twelfth causes of action is SUSTAINED.

This case was filed in August 2012. The demur Zen motion to strike attack plaintiffs’ third pleading. The court is not inclined to grant leave to amend, but will hear argument on this topic at the hearing.